Name:

Date:
2nd Mock Exam
I. True/False
1. The demand curve for a monopolist is downward-sloping because the
monopolist is the market so the monopolists demand curve is the market
demand
2. Nash Equilibrium is a concept of game theory where the optimal outcome of a
game is one where no player has an incentive to deviate from his chosen
strategy after considering an opponent's choice.
3. In perfect competition, the demand curve for an individual firm is horizontal
because the firm can sell as much as it wants at the market price since the
firm's output is small relative to market demand
4. A profit-maximizing monopolist does not restrict output below levels produced
in a perfectly competitive market but charges a higher price.
5. Monopoly increases consumer surplus and prevents a deadweight loss.
6. In the long run, profit-maximizing, monopolistically-competitive firms tend to
produce less output and charge a higher price than perfectly competitive
firms.
7. A monopoly loss tends to persist in the long run because of barriers to entry
8. Economic costs of production differ from accounting costs of production in
that economic costs add the opportunity cost of a firm using its own resources
II. Multiple-Choice Questions
1. If a perfectly competitive firm sells 50 units of output at a market price of P200 per
unit, its marginal revenue per unit is
a. P 200
b. 0
c. more than 0, but less than P 200.
d. None of the above
2. All of the following are true about a firm in a perfectly competitive industry except
that the firm
a. will always make a profit if it follows the rule of profit maximization
b. can enter and exit the market easily
c. faces many buyers and sellers in the market
d. produces a good that is a perfect substitute for goods produced by other firms
in the industry
3. In general, the demand for the product of a monopolistically competitive firm is:
a. Less elastic compared with that of a monopoly.
b. More elastic compared with that of a monopoly.
c. More elastic compared with that of a perfectly-competitive firm.
d. None of the above

4. In the short run, monopolistically-competitive firms:

a. May earn positive economic profit.
b. May earn a normal, above normal, or below normal rate of return.
c. Will continue to produce if AVC < P < ATC.
d. All of the above.
5. Plutonic Inc. is a perfectly competitive firm which sells its output for P80.00 per
unit, and the minimum average variable cost is P120.00 per unit. Plutonic Inc.
should
a. increase output.
b. shut down.
c. maintain its operation
d. decrease output, but not shut down
6. One difference between a perfectly competitive firm and a monopoly is that
a. a monopoly is always very much larger than a competitive firm
b. while neither type of firm can control price, a monopolist can control output
c. a monopoly faces a downward-sloping demand curve, while a perfectly
competitive firm faces a horizontal demand curve
d. a monopoly sets price equal to marginal revenue, while a perfectly competitive
firm sets price equal to marginal cost
7. In long-run equilibrium, the perfectly competitive firms price equals which of the
following?
a. Short-run marginal cost.
b. Minimum short-run average total cost.
c. Marginal revenue.
d. All of the above.
8. A monopolist chooses to produce at a level of output that generates less than
maximum efficiency because
a. entry can be prevented in this way
b. the goal for the firm is profit maximization, not efficiency
c. economies of scale are difficult for monopolists to achieve
d. monopolists can charge consumers more than they are willing to pay
9. The long-run supply curve for a perfectly competitive firm is its marginal cost curve
above the
a. average variable cost curve
b. average total cost curve
c. average fixed cost curve
d. total variable cost curve

10. Given similar costs of production, a comparison of a perfectly competitive firm in

long-run equilibrium and a monopoly shows that in perfect competition, output is
________________ and price is ______________.
a. the same, the same
b. higher, lower
c. higher, higher
d. lower, higher
11. Economies of scale mean that if a firm were to double its output
a. long-run average total cost would decrease
b. average total cost would remain unchanged
c. average total cost would increase
d. short-run average total cost would more than double
12. Entry into monopolistic competition results in a long-run equilibrium where
a. price is equal to marginal cost at the minimum of the average total cost curve
b. the demand curve is tangent to the average total cost curve to the left of its
minimum
c. economic profit persists
d. firms find it easier to raise price without losing sales
13. If marginal revenue is shown by the equation MR = 100 - l0Q, what is the
corresponding demand curve equation?
a. P= 100 - 5Q
b. P = 50 - 50Q
c. P = 100Q - 5Q2
d. P = 50 - 25Q
14. Which of the following is a characteristic of the monopolist's marginal revenue
curve?
a. it is hyperbolic
b. it lies above the demand curve
c. it is less than price at every output level
d. it is upward sloping
15. Firms in perfect competition are more efficient than firms in either monopolistic
competition or monopoly in the long run because
a in the long run, perfectly competitive firms produce at close to zero marginal
costs
b. monopolists and monopolistically competitive firms make profit
c. monopolists and monopolistically competitive firms have to advertise
d. perfectly competitive firms operate at minimum average total cost

III. Problem Solving

1. Refer to the graph below

a)
b)
c)
d)
e)
f)
g)
h)
i)

How much quantity will the monopolist produce to maximize profit?

What price will the monopolist impose to maximize profit?
What is the maximum profit that the monopolist will earn?
If the market is competitive, estimate what quantity will the firm produce to
maximize profit?
Estimate what price will the competitive firm impose to maximize profit?
What is the competitive firms profit?
Based on your answer in (f), should the competitive firm continue on
operating if the average variable cost is $ 300? Why or why not?
Shade the area of the deadweight loss in the graph.
How much will be the consumer surplus in the monopolistic market.

2. Refer to the graph below.

a)
b)
c)
d)

How much quantity will the monopolist produce to maximize profit?

What price will the monopolist impose to maximize profit?
What is the maximum profit that the monopolist will earn?
If the market is competitive, how much quantity will the firm produce to
maximize profit?
e) What price will the competitive firm impose to maximize profit?
f) What is the competitive firms profit?
g) Shade the area in the graph of the deadweight loss
3. Below is demand, cost and revenue schedule of a monopolistic competitive
firm. Complete the table below.
Q
0
1
2
3
4
5

P
24
22
20
18
16
14

TR

MR

TC
20
30
40
50
60
70

MC

a) What is the demand, total cost and total revenue function?

b) At what quantity and price will the producer maximize profit.
c) What is the maximum profit of the firm?

ATC

4. Identify the dominant strategy of each players, dominant equilibrium and Nash
equilibrium.
a.

Maxwell
Corp.

Britanny Inc.
Increase Price
Decrease
Price

b.

Feliciano
Inc.

Increase Price
80, 90

Decrease
Price
30, 50

50, 30

60, 60

Parker Corp.
Increase Price
Decrease
Price

Increase Price
25, 25

Decrease
Price
12, 10

10, 12

-10, -10