Business Economics 2015: Coursework Quiz 3 (Lecture Sessions 5 & 6)

The correct answers are in yellow

Please note: the questions for quiz 3 were NOT randomized as question 3 relies on ques. 2
Quiz Instructions
1. Long-run equilibrium in a monopolistically competitive industry is characterised by:
a)

P = MC

b)

P = ATC

c)

P = MR

d)

all of the above

e)

none of the above

2. Suppose a monopoly firm faces a downward-sloping demand curve described by the

equation P = 100 - 2Q. Suppose also that it can produce additional units of output at
a constant marginal cost of 40 and that total fixed costs are 1000. Under these
demand and cost conditions, the firm maximizes profits by producing:
a)

10 units of output

b)

15 units of output

c)

40 units of output

d)

50 units of output

e)

20 units of output

3. Using the same information about demand and cost conditions provided in the
previous question (question 2), and again assuming that the firm maximizes profits,
we can deduce that the firm will set its price at:
a) 0
b) 20
c) 60
d) 70
e) 80

4. A perfectively competitive industry is characterized by:

(a) a large number of small firms
(b) homogenous (identical) products
(c) no significant entry barriers to the industry
(d) all of the above
(e) none of the above

5. If the representative firm in a perfectly competitive market incurs losses, which of the
following conditions must hold in the short run:
a) MC > P
b) MC > AR
c) ATC > P
d) MC > MR
e) all of the above

6. The individual demand curve for a perfectly competitive firm is:

a) upward-sloping with respect to price
b) vertical with respect to price
c) horizontal at the prevailing market price
d) downward-sloping with respect to price
e) equivalent to the market demand curve

7. If a firm faces a downward-sloping demand curve, it maximizes profits by operating at

the point where:
a) MC = P
b) MR = P
c) P = AR
d) all of the above
e) none of the above
8. If a firm is a price-taker and it can earn economic profits (above-normal profits) we
can deduce that the firm must be operating at a rate of production for which:
a) P > MC
b) P > MR
c) P > ATC
d) all of the above
e) none of the above

9. For a monopoly firm, a limit pricing strategy is designed to:

a) limit the price paid for labour and capital inputs
b) deter the entry of new competitors
c) ensure that short-run profits are maximized
d) ration output when conditions of excess demand prevail
e) none of the above

10. For a profit-maximising firm in a perfectly competitive market, the decision to shut
down production in the short run is made when:
a) P < ATC
b) P < AFC
c) P < MC
d) P < AVC
e) none of the above
End of Coursework Quiz 3