ECP 3704 Final Exam UPDATED ACTUAL
Exam Questions and CORRECT Answers
Which of the following is true for a monopoly in equilibrium? - CORRECT ANSWER -P
> MC
If a monopolistically competitive firm's marginal cost increases, then in order to maximize
profits the firm will - CORRECT ANSWER - Reduce output and increase price
Which of the following is true? - CORRECT ANSWER - In the short run a monopolist
will shutdown if P < AVC
In the long-run, monopolistically competitive firms charge prices - CORRECT
ANSWER - Above the minimum of average total cost
Differentiated goods are not a feature of a - CORRECT ANSWER - Perfectly competitive
market and monopolistic market
One of the sources of monopoly power for a monopoly may be - CORRECT ANSWER -
Patents
A perfectly competitive firm faces a: - CORRECT ANSWER - Perfectly elastic demand
function
Which of the following features is common to both monopolistic markets and monopolistically
competitive markets? - CORRECT ANSWER - Many buyers
Which of the following is a correct representation of the profit maximization condition for a
monopoly? - CORRECT ANSWER - MC = MR
, Suppose that initially the price is $50 in a perfectly competitive market. Firms are making zero
economic profits. Then, several firm owners decide to retire and shut down their firms. When the
industry returns back to the long-run equilibrium conditions, what will be the new equilibrium
price, assuming cost conditions in the industry remain constant? - CORRECT ANSWER -
$50
The primary difference between Monopolistic Competition and Perfect Competition is -
CORRECT ANSWER - product differentiation
Firms can have market power in: - CORRECT ANSWER - Monopolistically competitive
markets and monopolistic markets
Which of the following is an example of monopoly? - CORRECT ANSWER - Local
utility industry in a small town
Which of the following market structures would you expect to yield the greatest product variety?
- CORRECT ANSWER - Monopolistic Competition
Which of the following features is common to both perfectly competitive markets and
monopolistically competitive markets? - CORRECT ANSWER - Long run profits are zero
Suppose a perfectly competitive market conditions are characterized by the following inverse
demand and inverse supply functions: P = 100 - 5Q and P = 10 + 5Q. Then, the demand curve
facing an individual firm operating in this market is (Hint: solve for equilibrium P and Q by
setting the demand and supply equations equal) - CORRECT ANSWER - A horizontal line
at $55
A market where a few firms produce most of the output is called a(n) - CORRECT
ANSWER - oligopolistic market.
The prisoner's dilemma and the problem of the cartel are very similar. In both cases, -
CORRECT ANSWER - cooperation would improve the outcome, but it rarely happens.
Exam Questions and CORRECT Answers
Which of the following is true for a monopoly in equilibrium? - CORRECT ANSWER -P
> MC
If a monopolistically competitive firm's marginal cost increases, then in order to maximize
profits the firm will - CORRECT ANSWER - Reduce output and increase price
Which of the following is true? - CORRECT ANSWER - In the short run a monopolist
will shutdown if P < AVC
In the long-run, monopolistically competitive firms charge prices - CORRECT
ANSWER - Above the minimum of average total cost
Differentiated goods are not a feature of a - CORRECT ANSWER - Perfectly competitive
market and monopolistic market
One of the sources of monopoly power for a monopoly may be - CORRECT ANSWER -
Patents
A perfectly competitive firm faces a: - CORRECT ANSWER - Perfectly elastic demand
function
Which of the following features is common to both monopolistic markets and monopolistically
competitive markets? - CORRECT ANSWER - Many buyers
Which of the following is a correct representation of the profit maximization condition for a
monopoly? - CORRECT ANSWER - MC = MR
, Suppose that initially the price is $50 in a perfectly competitive market. Firms are making zero
economic profits. Then, several firm owners decide to retire and shut down their firms. When the
industry returns back to the long-run equilibrium conditions, what will be the new equilibrium
price, assuming cost conditions in the industry remain constant? - CORRECT ANSWER -
$50
The primary difference between Monopolistic Competition and Perfect Competition is -
CORRECT ANSWER - product differentiation
Firms can have market power in: - CORRECT ANSWER - Monopolistically competitive
markets and monopolistic markets
Which of the following is an example of monopoly? - CORRECT ANSWER - Local
utility industry in a small town
Which of the following market structures would you expect to yield the greatest product variety?
- CORRECT ANSWER - Monopolistic Competition
Which of the following features is common to both perfectly competitive markets and
monopolistically competitive markets? - CORRECT ANSWER - Long run profits are zero
Suppose a perfectly competitive market conditions are characterized by the following inverse
demand and inverse supply functions: P = 100 - 5Q and P = 10 + 5Q. Then, the demand curve
facing an individual firm operating in this market is (Hint: solve for equilibrium P and Q by
setting the demand and supply equations equal) - CORRECT ANSWER - A horizontal line
at $55
A market where a few firms produce most of the output is called a(n) - CORRECT
ANSWER - oligopolistic market.
The prisoner's dilemma and the problem of the cartel are very similar. In both cases, -
CORRECT ANSWER - cooperation would improve the outcome, but it rarely happens.
