Market Structure: Perfect Competition and Monopoly Sample Questions AP Economics Mr. Bordelon

The marginal revenue received by a firm in a perfectly competitive market: is greater than the market price. is less than the market price. is equal to its average revenue. increases with the quantity of output sold. decreases with the quantity of output sold.

The marginal revenue received by a firm in a perfectly competitive market: is greater than the market price. is less than the market price. is equal to its average revenue. increases with the quantity of output sold. decreases with the quantity of output sold.

Which of the following is true? If price falls below average total cost, the firm will shut down in the short run. Price and marginal revenue are the same in perfect competition. Economic profit per unit is found by subtracting AVC from price. Economic profit is always positive in the short run. Economic profit is the sum of total fixed and total variable costs.

Which of the following is true? If price falls below average total cost, the firm will shut down in the short run. Price and marginal revenue are the same in perfect competition. Economic profit per unit is found by subtracting AVC from price. Economic profit is always positive in the short run. Economic profit is the sum of total fixed and total variable costs.

Output Total Cost $10 1 60 2 80 3 110 4 170 5 245 The table describes Bart’s perfectly competitive ice cream-producing firm. If the market price is $67.50, how many units of output will the firm produce? one two three four five

Output Total Cost $10 1 60 2 80 3 110 4 170 5 245 The table describes Bart’s perfectly competitive ice cream-producing firm. If the market price is $67.50, how many units of output will the firm produce? one two three four five

To maximize economic profit, this firm should produce quantity _____ where _____ = _____. q1; MR; MC q2; price; MC q2; MR; TR q1; TR; TC q2; TR; TC

To maximize economic profit, this firm should produce quantity _____ where _____ = _____. q1; MR; MC q2; price; MC q2; MR; TR q1; TR; TC q2; TR; TC

To the left of point C (e.g., at q1): economic profit is the vertical distance between Curve B and MC. the firm should increase output to maximize profits. the firm is maximizing profits. the firm should decrease output to maximize profits. the firm should decrease the price to the break-even point.

To the left of point C (e.g., at q1): economic profit is the vertical distance between Curve B and MC. the firm should increase output to maximize profits. the firm is maximizing profits. the firm should decrease output to maximize profits. the firm should decrease the price to the break-even point.

If a perfectly competitive firm is producing a quantity that generates P < MC, then profit: is maximized. can be increased by decreasing the price. can be increased by increasing production. can be increased by decreasing production. is negative and less than total fixed cost.

If a perfectly competitive firm is producing a quantity that generates P < MC, then profit: is maximized. can be increased by decreasing the price. can be increased by increasing production. can be increased by decreasing production. is negative and less than total fixed cost.

If price is currently between average variable cost and average total cost, then in the short run a perfectly competitive firm should: shut down. continue to produce to minimize losses. raise price. increase production to increase profit. reduce production to increase profit.

If price is currently between average variable cost and average total cost, then in the short run a perfectly competitive firm should: shut down. continue to produce to minimize losses. raise price. increase production to increase profit. reduce production to increase profit.

During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. In the short run, Alex will shut down his lawn-mowing service rather than continue with it if: the total revenues can’t cover the total fixed costs. the total revenues can’t cover the total variable costs. the total revenues can’t cover the total cost. the price exceeds the average total cost. losses are smaller than the total fixed costs.

During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. In the short run, Alex will shut down his lawn-mowing service rather than continue with it if: the total revenues can’t cover the total fixed costs. the total revenues can’t cover the total variable costs. the total revenues can’t cover the total cost. the price exceeds the average total cost. losses are smaller than the total fixed costs.

At the profit-maximizing quantity of output in the figure, total revenue is $____, total cost is $_____, and profit is $_____. 90; 14; 76 90; 70; 20 30; 42; -12 48; 56; -8 70; 70; 0

At the profit-maximizing quantity of output in the figure, total revenue is $____, total cost is $_____, and profit is $_____. 90; 14; 76 90; 70; 20 30; 42; -12 48; 56; -8 70; 70; 0

If this firm’s MR curve is MR1, the firm will profit-maximize by producing _____ units of output and its economic profit will be _____. Q1; positive Q2; negative Q3; positive Q4; negative Q2; zero

If this firm’s MR curve is MR1, the firm will profit-maximize by producing _____ units of output and its economic profit will be _____. Q1; positive Q2; negative Q3; positive Q4; negative Q2; zero

If this firm’s MR curve is MR2, the firm will profit-maximize by producing _____ units of output and its economic profit will be _____. Q1; positive Q2; negative Q3; positive Q4; negative zero; negative

If this firm’s MR curve is MR2, the firm will profit-maximize by producing _____ units of output and its economic profit will be _____. Q1; positive Q2; negative Q3; positive Q4; negative zero; negative

The shut-down point in the short run is: the point at which economic profit is zero. the intersection of the MC and AFC curves. the intersection of the MC and ATC curves. the minimum point of AFC. the minimum point of AVC.

The shut-down point in the short run is: the point at which economic profit is zero. the intersection of the MC and AFC curves. the intersection of the MC and ATC curves. the minimum point of AFC. the minimum point of AVC.

If firms are making positive economic profits in the short run, then in the long run: the short-run industry supply curve will shift leftward. firms will enter the industry. industry output will rise and price will rise. firms will leave the industry. the price will decrease to where price equals average variable cost.

If firms are making positive economic profits in the short run, then in the long run: the short-run industry supply curve will shift leftward. firms will enter the industry. industry output will rise and price will rise. firms will leave the industry. the price will decrease to where price equals average variable cost.

Suppose that some firms in a perfectly competitive industry are incurring negative economic profits. In the long run, the: industry supply curve will not shift. industry supply curve will shift to the left. number of firms in the industry will not change. number of firms in the industry will increase. market price will decrease.

Suppose that some firms in a perfectly competitive industry are incurring negative economic profits. In the long run, the: industry supply curve will not shift. industry supply curve will shift to the left. number of firms in the industry will not change. number of firms in the industry will increase. market price will decrease.

Lilly is the price-taking owner of an apple orchard Lilly is the price-taking owner of an apple orchard. Currently the price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect: lower apple prices due to entry of new firms. higher apple prices due to exit of existing firms. lower apple prices due to exit of existing firms. higher apple prices due to entry of new firms. no change in apple prices.

Lilly is the price-taking owner of an apple orchard Lilly is the price-taking owner of an apple orchard. Currently the price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect: lower apple prices due to entry of new firms. higher apple prices due to exit of existing firms. lower apple prices due to exit of existing firms. higher apple prices due to entry of new firms. no change in apple prices.

In the long run, firms in a competitive industry will: minimize average total cost. earn a positive economic profit. exit the industry if price is greater than average total cost. produce an output level at which price is greater than average total cost. produce a differentiated product.

In the long run, firms in a competitive industry will: minimize average total cost. earn a positive economic profit. exit the industry if price is greater than average total cost. produce an output level at which price is greater than average total cost. produce a differentiated product.

Quantity (Megawatts) Price per Megawatt Total Cost 1 $550 $1,000 2 500 1,075 3 450 1,200 4 400 1,375 5 350 1,600 6 300 1,875 7 250 2,200 8 200 2,575 Lenoia runs a natural monopoly producing electricity for a small mountain village. The table shows Lenoia’s demand and total cost of producing electricity. The price effect of increasing production from 3 to 4 megawatts is: -$150. $500. $450. -$50. -$400.

Quantity (Megawatts) Price per Megawatt Total Cost 1 $550 $1,000 2 500 1,075 3 450 1,200 4 400 1,375 5 350 1,600 6 300 1,875 7 250 2,200 8 200 2,575 Lenoia runs a natural monopoly producing electricity for a small mountain village. The table shows Lenoia’s demand and total cost of producing electricity. The price effect of increasing production from 3 to 4 megawatts is: -$150. $500. $450. -$50. -$400.

Assume there are no fixed costs and AC = MC Assume there are no fixed costs and AC = MC. In the figure, at the profit-maximizing quantity of production for the monopolist, total revenue is _____, total cost is _____, and profit is _____. $600; $200; $400 $1,600; $3,200; $1,600 $4,800; $3,200; $1,600 $4,800; $1,600; $3,200 $1,600; $800; $800

Assume there are no fixed costs and AC = MC Assume there are no fixed costs and AC = MC. In the figure, at the profit-maximizing quantity of production for the monopolist, total revenue is _____, total cost is _____, and profit is _____. $600; $200; $400 $1,600; $3,200; $1,600 $4,800; $3,200; $1,600 $4,800; $1,600; $3,200 $1,600; $800; $800

The profit-maximizing firm in this figure will produce _____ units of output per week. 160 220 250 300

The profit-maximizing firm in this figure will produce _____ units of output per week. 160 220 250 300

This profit-maximizing monopoly firm’s cost per unit at its profit-maximizing quantity is: $8. $15. $16. $18. $35.

This profit-maximizing monopoly firm’s cost per unit at its profit-maximizing quantity is: $8. $15. $16. $18. $35.

This profit-maximizing monopoly firm’s price per unit is: $20. $26. $29. $35. $16.

This profit-maximizing monopoly firm’s price per unit is: $20. $26. $29. $35. $16.

This profit-maximizing monopoly firm’s profit per unit is: $5. $13. $14. $20. $2.

This profit-maximizing monopoly firm’s profit per unit is: $5. $13. $14. $20. $2.

A natural monopoly exists when: a few firms collude to make one large firm. economies of scale provide large cost advantages to having one firm produce the industry’s output. firms naturally maximize profit regardless of market structure. firms enter the industry as a result of profit incentives. government creates a natural barrier to entry for other firms.

A natural monopoly exists when: a few firms collude to make one large firm. economies of scale provide large cost advantages to having one firm produce the industry’s output. firms naturally maximize profit regardless of market structure. firms enter the industry as a result of profit incentives. government creates a natural barrier to entry for other firms.

In the figure, the natural monopoly: would incur an economic profit if regulated to produce where price is less than marginal cost. would incur an economic profit if regulated to charge a price equal to average total cost. creates more consumer surplus if regulated to produce either where price equals marginal cost or price equals average total cost. creates more consumer surplus if regulated to produce where price is above the average total cost. eliminates consumer surplus if regulated to produce where price is above average total cost.

In the figure, the natural monopoly: would incur an economic profit if regulated to produce where price is less than marginal cost. would incur an economic profit if regulated to charge a price equal to average total cost. creates more consumer surplus if regulated to produce either where price equals marginal cost or price equals average total cost. creates more consumer surplus if regulated to produce where price is above the average total cost. eliminates consumer surplus if regulated to produce where price is above average total cost.