1.

(Points: 1)  
If you were running a firm in a perfectly competitive industry you would spend most of your time making
decisions about

a. design.

 
b. production.

c. advertising.

d. pricing.

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2.
(Points: 1)  
A monopolist which incurs a loss will

a. always shut down.

  b. always produce where marginal cost equals marginal revenue.

c. produce as long as total revenue is sufficient to cover variable costs.

d. produce as long as total revenue is sufficient to cover fixed costs.

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3.
(Points: 1)  
A firm in a perfectly competitive market has no control over price because

a. there is free entry and exit from the industry.

b. every firm's product is a perfect substitute for every other firm's product, and there is a very large
 
number of firms in the industry.

c. the market demand for products produced in perfectly competitive industries is perfectly elastic.

d. the government imposes price ceilings on the products produced in perfectly competitive industries.

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4.
(Points: 1)  
Which type of barrier to entry would allow an electricity distribution company to maintain a monopoly over
the local supply of electricity?

a. ownership of a scarce factor of production

 
b. a patent

c. legal controls

d. diseconomies of scale

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5.
(Points: 1)  
Which of the following statements does NOT refer to a characteristic of a perfectly competitive industry?

a. The demand curve facing each firm slopes downward and to the right.

  b. Firms produce identical products.

c. There is free exit from the industry.

d. There are many relatively small firms.

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6.
(Points: 1)  
The extent to which a monopolist can exercise market power is limited by

a. the costs of producing the product and the technology that is available.

  b. the price elasticity of supply.

c. the ease with which consumers can substitute other products for the monopolist's product.

d. the income elasticity of demand.

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7.
(Points: 1)  
For a monopoly to be a natural monopoly

a. there must be constant returns to scale up to the size of the total market.

b. the long-run average cost curve must continue to increase until it hits the market demand curve.
 

c. maximum economies of scale must be realised at an output that is more than half of total demand in
the market.

d. initial economies of scale must be realised at a scale that is small relative to the market.

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8.
(Points: 1)  
Suppose we know that a monopolist is maximising its profits. Which of the following is a correct inference?
The monopolist has

a. maximised its total revenue.

b. set price equal to its average cost.

 

c. maximised the difference between marginal revenue and marginal cost.

d. equated marginal revenue and marginal cost.

e. produced at some point on the inelastic part of its demand curve.

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9.
(Points: 1)  
  Relative to a competitively organised industry, a monopoly

a. produces less output, charges higher prices and earns supernormal profit.

b. produces less output, charges lower prices and earns supernormal profit.

c. produces less output, charges lower prices and earns only a normal profit.

d. produces more output, charges higher prices and earns supernormal profit.
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10.
(Points: 1)  
If a natural monopoly is broken up into smaller competing firms, the price of the product

a. will increase because the smaller competing firms will face higher average costs of production than
the natural monopolist will.

 
b. will decrease because competition has increased.

c. will increase because the monopolist no longer has to worry about keeping rivals from entering the
industry.

d. will decrease because smaller firms are price takers.