AP Microeconomics: Unit 4 EXAM comprehensive questions and verified accurate solution
(detailed & elaborated) 2025 TEST!!
"Price Maker" (3) - ✔✔ -firm can manipulate price by changing the quantity produced (ie. shifting
supply to the left)
5 Characteristics of a Monopoly - ✔✔ 1) Single Seller
2) Unique good with no close substitute
3) "Price Maker"
4) High Barriers to Entry
5) Some "Nonprice" Competition
Advantages of Monopolistic Competition - ✔✔ -large number of firms and product variation meets
society's needs
-Non-price Competition (product differentiation and advertising) may result in sustained profits for
some firms
Ex: Nike, Apple might continue to make above normal profit because they are well-known
Are monopolies allocatively efficient? - ✔✔ No, price is greater and the monopoly is under
producing
Are monopolies efficient? - ✔✔ No, monopolies under-produce and overcharge
Are monopolies productively efficient? - ✔✔ No, they are not producing at the lowest cost
(minimum ATC). Instead, they will maximize profit by finding MR=MC
Are monopolistically competitive firms efficient? - ✔✔ No; not allocatively efficient because P≠MC
and not productively efficient because it isn't producing at minimum ATC
Barriers to Entry for Oligopolies - ✔✔ 1. Economies of Scale
2. High Start-up Costs
3. Ownership of Raw Materials
, Characteristics of Oligopolies - ✔✔ -few large producers (less than 10)
-identical or differentiated products
-high barriers to entry
-control over price (price maker)
-mutual interdependence (firms use strategic pricing)
Ex: cereal companies, car producers
collusion - ✔✔ the act of cooperating with rivals in order to "rig" a situation
Differentiated Products - ✔✔ -goods are NOT identical
-firms seek to capture a piece of the market by making unique goods
-firms use NON-PRICE Competition because these products have substitutes
Excess Capacity - ✔✔ -given current resources, the firm CAN produce at the lowest costs (minimum
ATC) but they decide not to
-it is the gap between the minimum ATC output and the profit maximizing output, not the amount
underproduced
Excess Capacity (reason) - ✔✔ The firm can produce at a lower cost but it holds back production to
maximize profit
Fair-Return Price (Break-Even) - ✔✔ P=ATC (Normal Profit, no economic profit)
Four Origins of Monopolies (Barriers to Entry) - ✔✔ 1) Geography
2) Government
3) Technology or Common Use
4)Mass Production and Low Costs
Game Theory - ✔✔ the study of how people behave in strategic situations
High Barriers to Entry (4) - ✔✔ -new firms CANNOT enter market
(detailed & elaborated) 2025 TEST!!
"Price Maker" (3) - ✔✔ -firm can manipulate price by changing the quantity produced (ie. shifting
supply to the left)
5 Characteristics of a Monopoly - ✔✔ 1) Single Seller
2) Unique good with no close substitute
3) "Price Maker"
4) High Barriers to Entry
5) Some "Nonprice" Competition
Advantages of Monopolistic Competition - ✔✔ -large number of firms and product variation meets
society's needs
-Non-price Competition (product differentiation and advertising) may result in sustained profits for
some firms
Ex: Nike, Apple might continue to make above normal profit because they are well-known
Are monopolies allocatively efficient? - ✔✔ No, price is greater and the monopoly is under
producing
Are monopolies efficient? - ✔✔ No, monopolies under-produce and overcharge
Are monopolies productively efficient? - ✔✔ No, they are not producing at the lowest cost
(minimum ATC). Instead, they will maximize profit by finding MR=MC
Are monopolistically competitive firms efficient? - ✔✔ No; not allocatively efficient because P≠MC
and not productively efficient because it isn't producing at minimum ATC
Barriers to Entry for Oligopolies - ✔✔ 1. Economies of Scale
2. High Start-up Costs
3. Ownership of Raw Materials
, Characteristics of Oligopolies - ✔✔ -few large producers (less than 10)
-identical or differentiated products
-high barriers to entry
-control over price (price maker)
-mutual interdependence (firms use strategic pricing)
Ex: cereal companies, car producers
collusion - ✔✔ the act of cooperating with rivals in order to "rig" a situation
Differentiated Products - ✔✔ -goods are NOT identical
-firms seek to capture a piece of the market by making unique goods
-firms use NON-PRICE Competition because these products have substitutes
Excess Capacity - ✔✔ -given current resources, the firm CAN produce at the lowest costs (minimum
ATC) but they decide not to
-it is the gap between the minimum ATC output and the profit maximizing output, not the amount
underproduced
Excess Capacity (reason) - ✔✔ The firm can produce at a lower cost but it holds back production to
maximize profit
Fair-Return Price (Break-Even) - ✔✔ P=ATC (Normal Profit, no economic profit)
Four Origins of Monopolies (Barriers to Entry) - ✔✔ 1) Geography
2) Government
3) Technology or Common Use
4)Mass Production and Low Costs
Game Theory - ✔✔ the study of how people behave in strategic situations
High Barriers to Entry (4) - ✔✔ -new firms CANNOT enter market
