ECO 2023 Exam 4 Test Questions and All
Correct Answers 2026-2027 Updated.
The graph below depicts a profit-seeking firm:
If the firm wants to maximize profits (or minimize losses), which of the following is correct?
a. this is a price searcher that will produce in the short run but shut down in the long run
b. this is a price taker that will produce in the short run but shut down in the long run
c. this is a price searcher that will produce in the short run and the long run
d. this is a price searcher that will shut down in the short run and the long run - Answer a. this
is a price searcher that will produce in the short run but shut down in the long run
Which of the following is NOT an example of a barrier to entry?
a. a patent that prevents competitors from using a technology
b. occupational licensing laws that force new entrants to go through lengthy training in order to
enter an industry
c. tariffs on foreign goods, which make it more difficult for foreign firms to sell their goods in our
market
d. low transportation costs which make it easy to move goods to new markets - Answer d. low
transportation costs which make it easy to move goods to new markets
The graph below depicts a firm. Which of the following is correct?
a. the firm is a price searcher, and is earning negative economic profit
b. the firm is a price taker, and is earning zero economic profit
c. the firm is a monopoly, and is earning positive economic profit
d. the firm is an oligopoly, and we cannot be sure of its profits from the information in the graph
- Answer b. the firm is a price taker, and is earning zero economic profit
As new firms enter a monopolistically competitive market, profits of existing firms
a. rise and product diversity in the market increases
b. rise and product diversity in the market decreases
c. decline and product diversity in the market increases
d. decline and product diversity in the market decreases - Answer c. decline and product
diversity in the market increases
Monopolistic Competition is different from Perfect Competition in that...
a. Monopolistically Competitive firms produce differentiated products, whereas Perfectly
Competitive firms produce identical goods
, b. Monopolistic Competition has high entry barriers, whereas Perfect Competition has low entry
barriers
c. Monopolistic Competition has only few firms, whereas Perfect Competition has many firms
d. Monopolistically Competitive firms face horizontal demand, whereas Perfectly Competitive
firms face downward-sloping demand - Answer a. Monopolistically Competitive firms produce
differentiated products, whereas Perfectly Competitive firms produce identical goods
Which of the following Monopolistically Competitive firms is earning zero economic profit?
a. D and MR > ATC
b. D = ATC, MR < ATC
c. D and MR < ATC - Answer b. D = ATC, MR < ATC
Firms in a monopolistically competitive industry are suffering negative economic profits. What
happens next?
a. some firms exit, sending consumers to the remaining firms, resulting in an increase in
demand for those firms, and profits are restored to zero
b. some firms exit, resulting in an increase in costs, and driving up the price, until zero profit is
restored
c. firms enter until costs fall and zero profit is restored
d. nothing happens because there are barriers to exit - Answer a. some firms exit, sending
consumers to the remaining firms, resulting in an increase in demand for those firms, and
profits are restored to zero
Marginal Revenue falls faster than Demand for a monopoly because...
a. governments tax some of the revenue away from monopolies
b. to get consumers to buy more output, the monopolist must cut the price on not only the
additional units sold, but also the units that would have been sold under the higher price
c. price discrimination allows the monopolist to sell more output at a lower price
d. the law of diminishing returns says that cutting the price of a good helps at first, but because
some inputs are fixed, total revenue eventually starts to fall - Answer b. to get consumers to
buy more output, the monopolist must cut the price on not only the additional units sold, but
also the units that would have been sold under the higher price
Several states require cosmetologists to undertake 1,500 hours or more of training in order to
obtain a license to provide hair styling or braiding services. This is an example of
a. antitrust legislation
b. government action that promotes competition
c. a barrier to entry
Correct Answers 2026-2027 Updated.
The graph below depicts a profit-seeking firm:
If the firm wants to maximize profits (or minimize losses), which of the following is correct?
a. this is a price searcher that will produce in the short run but shut down in the long run
b. this is a price taker that will produce in the short run but shut down in the long run
c. this is a price searcher that will produce in the short run and the long run
d. this is a price searcher that will shut down in the short run and the long run - Answer a. this
is a price searcher that will produce in the short run but shut down in the long run
Which of the following is NOT an example of a barrier to entry?
a. a patent that prevents competitors from using a technology
b. occupational licensing laws that force new entrants to go through lengthy training in order to
enter an industry
c. tariffs on foreign goods, which make it more difficult for foreign firms to sell their goods in our
market
d. low transportation costs which make it easy to move goods to new markets - Answer d. low
transportation costs which make it easy to move goods to new markets
The graph below depicts a firm. Which of the following is correct?
a. the firm is a price searcher, and is earning negative economic profit
b. the firm is a price taker, and is earning zero economic profit
c. the firm is a monopoly, and is earning positive economic profit
d. the firm is an oligopoly, and we cannot be sure of its profits from the information in the graph
- Answer b. the firm is a price taker, and is earning zero economic profit
As new firms enter a monopolistically competitive market, profits of existing firms
a. rise and product diversity in the market increases
b. rise and product diversity in the market decreases
c. decline and product diversity in the market increases
d. decline and product diversity in the market decreases - Answer c. decline and product
diversity in the market increases
Monopolistic Competition is different from Perfect Competition in that...
a. Monopolistically Competitive firms produce differentiated products, whereas Perfectly
Competitive firms produce identical goods
, b. Monopolistic Competition has high entry barriers, whereas Perfect Competition has low entry
barriers
c. Monopolistic Competition has only few firms, whereas Perfect Competition has many firms
d. Monopolistically Competitive firms face horizontal demand, whereas Perfectly Competitive
firms face downward-sloping demand - Answer a. Monopolistically Competitive firms produce
differentiated products, whereas Perfectly Competitive firms produce identical goods
Which of the following Monopolistically Competitive firms is earning zero economic profit?
a. D and MR > ATC
b. D = ATC, MR < ATC
c. D and MR < ATC - Answer b. D = ATC, MR < ATC
Firms in a monopolistically competitive industry are suffering negative economic profits. What
happens next?
a. some firms exit, sending consumers to the remaining firms, resulting in an increase in
demand for those firms, and profits are restored to zero
b. some firms exit, resulting in an increase in costs, and driving up the price, until zero profit is
restored
c. firms enter until costs fall and zero profit is restored
d. nothing happens because there are barriers to exit - Answer a. some firms exit, sending
consumers to the remaining firms, resulting in an increase in demand for those firms, and
profits are restored to zero
Marginal Revenue falls faster than Demand for a monopoly because...
a. governments tax some of the revenue away from monopolies
b. to get consumers to buy more output, the monopolist must cut the price on not only the
additional units sold, but also the units that would have been sold under the higher price
c. price discrimination allows the monopolist to sell more output at a lower price
d. the law of diminishing returns says that cutting the price of a good helps at first, but because
some inputs are fixed, total revenue eventually starts to fall - Answer b. to get consumers to
buy more output, the monopolist must cut the price on not only the additional units sold, but
also the units that would have been sold under the higher price
Several states require cosmetologists to undertake 1,500 hours or more of training in order to
obtain a license to provide hair styling or braiding services. This is an example of
a. antitrust legislation
b. government action that promotes competition
c. a barrier to entry
