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C07: The Theory of Firm and Market Structure (Please circle O your answer.) 1. If a firm in a perfectly competitive market experiences a technological breakthrough: A. other firms would find out about it eventually. B. other firms would find out about it immediately. C. other firms would not find out about it. D. some firms would find out about it but others would not. 2. Each firm in perfect competition: A. sets quantity based on market price. B. follows the pricing decisions of other firms. C. follows the output of other firms. D. follows the reactions of competitors. 3. If the marginal revenue of the last widget the firm produces is $50 and its marginal cost is $35, a firm should: A. reconsider past production decisions. B. decrease production. C. increase production. D. hold production constant. 4. Spam (junk e-mail) is a major annoyance for many people who use the internet. However,

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spammers sometimes have to send thousands of messages to get even one response that pays money. Given this information: A. spamming cannot be profitable because of the low numbers of buyers; its sole purpose is to annoy others. B. spamming cannot be profitable because of the low numbers of buyers; it is fraudulently profitable. C. spamming can be profitable even with very low numbers of buyers because the marginal cost of sending spam is virtually zero. D. as many other activities on the internet, spammers are only profitable because they rely on the fees from advertising. 5. Suppose a perfectly competitive firm can increase its profits by reducing its output. Then it must be the case that the firm's: A. marginal revenue equals its marginal cost. B. price exceeds its marginal cost. C. price exceeds its marginal revenue. D. marginal cost exceeds its marginal revenue. 6. A perfectly competitive firm will be profitable if price at the profit-maximizing quantity is above: A. MC. B. AVC. C. ATC. D. AFC. 7. A monopoly firm is different from a competitive firm in that: A. there are many substitutes for a monopolist's product while there are no substitutes for a competitive firm's product. B. a monopolist's demand curve is perfectly inelastic while a competitive firm's demand curve is perfectly elastic. C. a monopolist can influence market price while a competitive firm cannot. D. a competitive firm has a U-shaped average cost curve while a monopolist does not.

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8. Refer to the graph above. The profit-maximizing monopolist produces output: A. Q1. B. Q2. C. Q3. D. Q4. 9. Refer to the graph above. The profit-maximizing monopolist would sell its output at price: A. P1. B. P2. C. P3. D. P4. 10. Refer to the graph above. The profit-maximizing monopolist would be: A. making a normal return. B. sustaining a loss. C. making zero economic profits. D. making economic profits.