AP Microeconomics Unit 4 Test questions and correct answers

Which would be most characteristic of monopolistic competition? a relatively large number of firms The concerns that monopolistically competitive firms express about product attributes, services to customers, or brand names are aspects of product differentiation The demand curve a monopolistically competitive firm faces is Highly but not perfectly elastic In the short run, a typical monopolistically competitive firm will earn An economic or normal profit or suffer an economic loss A monopolistically competitive firm is producing at an output level in the short run where average total cost is $3.50, price is $3.00, marginal revenue is $1.50, and marginal cost is $1.50. This firm is operating with an economic loss in the short run The underallocation of resources in monopolistic competition means that at the profit-maximizing level of output, price is greater than MC If a monopolistically competitive industry is in long-run equilibrium, a firm in that industry may be able to increase its economic profits by increasing the amounts it spends to advertise its product Which would be most characteristic of oligopoly? a few large producers What is the situation called when firms in an industry reach an agreement to fix prices, divide up the market, or otherwise restrict competition? collusion When oligopolists collude, the results are generally smaller output and higher price To be successful, collusion requires that oligopolists be able to block or restrict the entry of new producers Which would be defining characteristics of pure monopoly? No close substitutes for the product exist, and there is one seller A barrier to entry that significantly contributes to the establishment of a monopoly would be Economies of scale The demand curve for the pure monopolist is downsloping Which is true with respect to the demand data confronting a monopolist? Marginal revenue decreases as average revenue decreases When the monopolist is maximizing total profits or minimizing losses, average revenue is greater than marginal cost The supply curve for a pure monopolist does not exist When compared with the purely competitive industry with identical costs of production, a monopolist will charge a higher price and produce less output At an equilibrium level of output, a monopolist is not productively efficient because the average total cost of producing the product is not at a minimum