1. Which of the following statements applies to a purely competitive producer? a. It will not advertise its product. b. In long-run equilibrium it will earn an economic profit. c. Its product will have a brand name. d. Its product is slightly different from those of its competitors. A purely competitive seller is: a. both a “price maker” and a “price taker.” b. neither a “price maker” nor a “price taker.” c. a “price taker.” d. a “price maker.” Which of the following is not characteristic of pure competition? a. price strategies by firms b. a standardized product c. no barriers to entry d. a larger number of sellers The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______. a. perfectly inelastic, perfectly elastic b. downsloping, perfectly elastic c. downsloping, perfectly inelastic d. perfectly elastic, downsloping Marginal revenue for a purely competitive firm: a. is greater than price. b. is less than price. c. is equal to price. d. may be either greater or less than price. The MR = MC rule applies: a. to firms in all types of industries. b. only when the firm is a “price taker.” c. only to monopolies. d. only to purely competitive firms. The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the: a. output-maximizing rule. b. profit-maximizing rule. c. shut-down rule. d. break-even rule. Long-run competitive equilibrium: a. is realized only in constant-cost industries. b. will never change once it is realized. c. is not economically efficient. d. results in zero economic profits. A purely competitive firm: a. must earn a normal profit in the short run. b. cannot earn economic profit in the long run. c. may realize either economic profit or losses in the long run. d. cannot earn economic profit in the short run. Resources are efficiently allocated when production occurs where: a. marginal cost equals average variable cost. b. price is equal to average revenue. c. price is equal to marginal cost. d. price is equal to average variable cost. Pure monopoly means: a. any market in which the demand curve to the firm is downsloping. b. a standardized product being produced by many firms. c. a single firm producing a product for which there are no close substitutes. d. a large number of firms producing a differentiated product. Which of the following is correct? a. Both purely competitive and monopolistic firms are “price takers.” b. Both purely competitive and monopolistic firms are “price makers.” c. A purely competitive firm is a “price taker,” while a monopolist is a “price maker.” d. A purely competitive firm is a “price maker,” while a monopolist is a “price taker.” Which of the following approximates a pure monopoly? a. the foreign exchange market b. the Kansas City wheat market c. the diamond market d. the soft drink market A natural monopoly occurs when: a. long-run average costs decline continuously through the range of demand. b. a firm owns or controls some resource essential to production. c. long-run average costs rise continuously as output is increased. d. economies of scale are obtained at relatively low levels of output. The pure monopolist’s demand curve is: a. identical with the industry demand curve. b. of unit elasticity throughout. c. perfectly inelastic. d. perfectly elastic. A nondiscriminating monopolist: a. will never produce in the output range where marginal revenue is positive. b. will never produce in the output range where demand is inelastic. c. will never produce in the output range where demand is elastic. d. may produce where demand is either elastic or inelastic, depending on the level of production costs. If a pure monopolist is producing at that output where P= ATC, then: a. its economic profits will be zero. b. it will be realizing losses. c. it will be producing less than the profit-maximizing level of output. d. it will be realizing an economic profit. The supply curve of a pure monopolist: a. is that portion of its marginal cost curve which lies above average variable cost. b. is the same as that of a purely competitive industry. c. is its average variable cost curve. d. does not exist because prices are not “given” to a monopolist. Economic profit in the long run is: a. possible for both a pure monopoly and a pure competitor. b. possible for a pure monopoly, but not for a pure competitor. c. impossible for both a pure monopolist and a pure competitor. d. only possible when barriers to entry are nonexistent. Price discrimination refers to: a. selling a given product for different prices at two different points in time. b. any price above that which is equal to a minimum average total cost. c. the selling of a given product at different prices that do not reflect cost differences. d. the difference between the prices a purely competitive seller and a purely monopolistic seller would charge. Monopolistic competition means: a. a market situation where competition is based entirely on product differentiation and advertising. b. a large number of firms producing a standardized or homogeneous product. c. many firms producing differentiated products. d. a few firms producing a standardized or homogeneous product. Nonprice competition refers to: a. low barriers to entry. b. product development, advertising, and product packaging. c. the differences in information which consumers have regarding various products. d. an industry or firm in long-run equilibrium. Monopolistically competitive firms: a. realize normal profits in the short run but losses in the long run. b. incur persistent losses in both the short run and long run. c. may realize either profits or losses in the short run, but realize normal profits in the long run. d. persistently realize economic profits in both the short run and long run. In which of these continuums of degrees of competition (highest to lowest) is oligopoly properly placed? a. pure competition, oligopoly, pure monopoly, monopolistic competition b. oligopoly, pure competition, monopolistic competition, pure monopoly c. monopolistic competition, pure competition, pure monopoly, oligopoly d. pure competition, monopolistic competition, oligopoly, pure monopoly The term oligopoly indicates: a. a one-firm industry. b. many producers of a differentiated product. c. a few firms producing either a differentiated or a homogeneous product. d. an industry whose four-firm concentration ratio is low. Mutual interdependence means that each oligopolistic firm: a. faces a perfectly elastic demand for its product. b. must consider the reactions of its rivals when it determines its price policy. c. produces a product identical to those of its rivals. d. produces a product similar but not identical to the products of its rivals. Concentration ratios measure the: a. geographic location of the largest corporations in each industry. b. degree to which product price exceeds marginal cost in various industries. c. percentage of total sales accounted for by the four largest firms in the industry. d. number of firms in an industry. Game theory: a. is the analysis of how people (or firms) behave in strategic situations. b. is best suited for analyzing purely competitive markets. c. reveals that mergers between rival firms are self-defeating. d. reveals that price-fixing among firms reduces profits. The kinked-demand curve of an oligopolist is based on the assumption that: a. competitors will follow a price cut but ignore a price increase. b. competitors will match both price cuts and price increases. c. competitors will ignore a price cut but follow a price increase. d. there is no product differentiation. Three major means of collusion by oligopolists are: a. cartels, tacit understandings, and price leadership. b. market sharing, mutual interdependence, and product differentiation. c. cartels, kinked-demand pricing, and product differentiation. d. tacit understandings, P = MC pricing, and mutual interdependence.