Issues in Economics Today 8th Edition Guell Test Bank 1

Chapter 5
Perfect Competition, Monopoly and Economic Versus Normal Profit

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Multiple Choice
1. In Figure 5.1, what output would a perfect competitor produce?
A) Q1
B) Q2
C) Q3
D) Q4
Answer: B
Learning Objective: 05-01
Topic: From Perfect Competition to Monopoly
Blooms: Evaluate
AACSB: Analytical Thinking
Difficulty: 3 Hard
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2. In Figure 5.1, what profit would a perfect competitor earn?
A) a profit of zero
B) a positive profit
C) a loss less than its total fixed cost
D) a loss greater than its total fixed cost
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
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P
MC
ATC
AVC
P* MR
Q1 Q2 Q3 Q/t
Figure 5.2
A) Q1
B) Q2
C) Q3
D) 0
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard

P
MC
ATC
AVC
P* MR
Q1 Q2 Q3 Q/t
Figure 5.3
A) Q1
B) Q2
C) Q3
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D) 0
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
5. In Figure 5.4, a monopolist would charge which price?
MC
ATC
P4
AVC
P3
P2
P1 MR D
Q*
Figure 5.4
A) P1
B) P2
C) P3
D) P4
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
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A) P1
B) P2
C) P3
D) P4
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
7. In Figure 5.5, what profit would the monopolist earn?
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A) zero profit, because it would shut down.
B) a positive profit.
C) a loss less than its total fixed cost.
D) a loss greater than its total fixed cost.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
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A) The monopolist would shutdown so no price would be charged.
B) P2
C) P3
D) P4
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
9. In Figure 5.6, what profit would the monopolist earn? In the figure above, a monopolist
would charge which price?
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A) zero profit.
B) a positive profit.
C) a loss equal to its total fixed cost.
D) a loss greater than its total fixed cost.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
10. Which of the following is not an assumption of perfect competition?

A) Branded products
B) Many buyers
C) Many sellers
D) Identical (or indistinguishable) products
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
11. Which of the following is not an assumption of perfect competition?

A) Freedom of entry
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B) Powerful buyers
C) Freedom of exit
D) Identical (or indistinguishable) products
Answer: B
Blooms: Remember
Difficulty: 1 Easy
12. Perfect competition means that firms are

A) Price makers (firms set the price of the market)
B) Price takers (firms must accept the price of the market)
C) Powerful sellers
D) Unable to make normal profits
Answer: B
Blooms: Understand
Difficulty: 1 Easy
13. When firms are in perfect competition the result is that firms charge a price that is always
equal to its
A) Minimum ATC
B) Minimum AVC
C) MC
D) AFC
Answer: C
Blooms: Remember
Difficulty: 1 Easy
14. The typical firm in perfect competition is

A) An airline
B) A farm
C) A fast food restaurant chain
D) An electrical power company
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Answer: B
Blooms: Apply
AACSB: Knowledge Application
Difficulty: 2 Medium
15. A firm that has a branded product is

A) Likely in perfect competition
B) Not likely to be in perfect competition
C) Always in perfect competition
D) Always a price taker
Answer: B
Blooms: Apply
16. For a market to be characterized by perfect competition, there must be

A) a large number of firms with no one able to influence price.
B) freedom of entry and exit.
C) indistinguishable products being sold.
D) all of the options are correct.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
17. For a market to be characterized by monopoly, there must be

B) freedom of entry and exit.
D) a single seller
Answer: D
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Blooms: Understand
Difficulty: 1 Easy
18. For a market to be characterized by monopoly, there must be

B) barriers to entry and exit.
D) good information about sales and costs.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
19. The key difference(s) between perfect competition and monopolistic competition is
A) the products sold are slightly different in perfect competition.
B) the products sold are slightly different in monopolistic competition.
C) there is poor information about prices in perfect competition.
D) there is poor information about prices in monopolistic competition.
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
20. The key difference(s) between monopoly and oligopoly is

A) that there are two in oligopoly rather than one competitor in a monopoly.
B) there are no barriers to entry with oligopoly.
C) there must be product differences in oligopoly.
D) there are no differences between oligopoly and a monopoly.
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
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21. The firm’s supply curve is made up of the
A) Points where MC=MR
B) Points where MC=MR and they make a profit
C) Points where MC=MR and they make at least breakeven
D) Points where MC=MR above the minimum of AVC
Answer: D
Topic: Supply under Perfect Competition
Blooms: Remember
Difficulty: 1 Easy
22. The firm’s supply curve is their

A) Marginal cost curve above the minimum of ATC
B) Marginal cost curve above the minimum of AVC
C) The upward sloping portion of the marginal cost curve
D) The entire marginal cost curve
Answer: B
Blooms: Remember
Difficulty: 1 Easy
23. Agricultural Products can be modeled best using the model of

A) monopolistic competition.
B) perfect competition.
C) oligopoly.
D) monopoly.
Answer: B
Blooms: Apply
24. Lumber Products can be modeled best using the model of

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C) oligopoly.
D) monopoly.
Answer: B
Blooms: Apply
25. The fast food industry can be modeled best using the model of
C) oligopoly.
D) monopoly.
Answer: A
Blooms: Apply
26. The breakfast cereals industry can be best modeled using the model of
C) oligopoly.
D) monopoly.
Answer: A
Blooms: Apply
27. The soft drink (colas in particular) industry can be best modeled using the model of
C) oligopoly.
D) monopoly.
Answer: C
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Blooms: Apply
28. The personal computer operating systems industry can be best modeled using the model
of
C) oligopoly.
D) Monopoly.
Answer: D
Blooms: Apply
29. The local residential electrical power industry can be best modeled using the model of
C) oligopoly.
D) monopoly.
Answer: D
Blooms: Apply
30. There are hundreds of local water companies but economists insist that in each
community they are __________ because consumers have no other choices in the local
market in which they live.
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
Answer: D
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Blooms: Apply
31. If you drive on a rural stretch of highway and come upon an intersection in which there is
only one gas station and you know it to be the only one for 100 miles, it is a
A) monopolist.
B) perfect competitor.
C) monopolistic competitor.
D) oligopolist.
Answer: A
Blooms: Apply
32. If you drive on a rural stretch of highway and come upon an intersection in which there
are two gas stations and you know them to be the only ones for 100 miles, they are
A) monopolists.
B) monopolistic competitors.
C) perfect competitors.
D) oligopolists.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
33. Suppose ten companies begin introducing new genetically engineered apples. Each has
their own distinctive taste and brand name. This market would be described by
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
Answer: B
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Blooms: Evaluate
Difficulty: 3 Hard
34. Suppose you can get broadband only from your cable company or your phone company.
This market would be described by
C) oligopoly.
D) monopoly.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
35. Suppose you can get the typical cable channels (ESPN, MTV, Bravo, etc.) from a cable
company, from DIRECTV, or from DISH Network. This market would be described by
B) healthy competition.
C) oligopoly.
D) monopoly.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
36. Suppose you can fly from your home city to New York but only one airline provides the
service. This market would be described by
B) healthy competition.
C) oligopoly.
D) monopoly.
Answer: D
Blooms: Evaluate
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Difficulty: 3 Hard
37. Suppose you can fly from LA to New York and 15 separate airlines provide the service.
A) limited competition.
C) oligopoly.
D) monopoly.
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
38. Suppose you can fly from Charlotte to London but only two airlines provide the service.
A) limited competition.
C) oligopoly.
D) monopoly.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
39. An industry in which there are many competitors with specific marketing niches is likely
to be characterized by
A) monopoly.
C) oligopoly.
D) perfect competition.
Answer: B
Blooms: Evaluate
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Difficulty: 3 Hard
40. An industry in which there are just a few large firms is likely to be characterized by
A) monopoly.
C) oligopoly.
D) perfect competition.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
41. The usefulness and relative simplicity of the supply and demand model is often used
A) because nearly every major industry in the U.S. is governed by perfect competition.
B) because nearly every major industry in the U.S. is governed by monopoly.
C) even though, strictly speaking, few industries in the U.S. are governed by perfect
competition.
D) even though it has no connection to economic reality.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
42. Whether a firm stays in business or shuts down depends heavily on the concept of
A) economic profit.
B) actual profit.
C) market share.
D) concentration ratios.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
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43. Economic theory would suggest that the profitability of an industry would be
A) directly related to the number of firms competing in the industry.
B) inversely related to the number of firms competing in the industry.
C) unrelated to the number of firms competing in the industry.
D) zero in the long run, regardless of market structure.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
44. An indicator of the degree of competition in an industry is the concentration ratio. It

measures
A) the percentage of sales in the industry by the largest firms.
B) the percentage of profit in the industry by the smallest firms.
C) the sales in the industry as a percentage of all consumption in the U.S.
D) the profitability of the industry.
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
45. Local telephone service was once an area in which consumers had no choices. Many
young people no longer use “land lines” preferring instead to use their cellular phones.
This means that the market has moved toward
A) monopoly.
B) oligopoly.
C) perfect competition.
D) monopsony.
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
46. In Figure 5.7, assuming perfect competition which price(s) is associated with a loss?
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A) MR1
B) MR2
C) MR3
D) MR1 and MR2
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
47. In Figure 5.7, assuming perfect competition which price is associated with profit being
exactly normal?
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A) MR1
B) MR2
C) MR3
D) MR4
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
48. In Figure 5.7, assuming perfect competition which price is associated with positive
economic profit?
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A) MR1
B) MR2
C) MR3
D) MR4
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
49. In Figure 5.7, assuming perfect competition and at MR1 there will be
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A) short run pressure on the price to rise.
B) long run pressure on the price to rise.
C) no pressure on the price to change.
D) short and long run pressure on the price to rise.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
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Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
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Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
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A) short run pressure on the price to fall.
B) long run pressure on the price to fall.
D) short and long run pressure on the price to fall.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
53. In a diagram of perfect competition, the marginal revenue line moves up and down when
there is exit and entry, respectively, because
A) the market demand for the good rises and falls when there is exit and entry,
respectively.
B) the market demand for the good rises and falls when there is entry and exit,
respectively.
C) the market supply for the good rises and falls when there is exit and entry,
respectively.
D) the market supply for the good rises and falls when there is entry and exit,
respectively.
Answer: D
Blooms: Remember
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Difficulty: 1 Easy
54. If MR>MC then when an additional unit is sold the firm's

A) profit will be positive.
B) profit will be negative.
C) profit will increase.
D) profit will decrease.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
55. Economic Profit exists whenever

A) A firm makes even one penny.
B) A firm makes more than its competitors.
C) A firm makes more than the minimum required to maintain the incentive to remain in
the industry.
D) A firm makes enough to that it is required to pay taxes.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
56. Normal Profit is what a firm

A) usually makes.
B) needs to make to maintain the incentive to remain in the industry.
C) is zero in the long run.
D) a) and b)
Answer: B
Blooms: Understand
Difficulty: 1 Easy
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57. The assumption under perfect competition of a "homogeneous product" means that
A) the good one firm produces is exactly the same as the good another firm produces.
B) the good one firm produces is very different than the good another produces.
C) that no firm can charge more than another for its product.
D) that no buyer will pay more for one firm's good than another's.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
58. The assumption under perfect competition of a firm that has no market power means that
A) firms are free to leave the market any time and there is no power keeping them there.
B) the good one firm produces is very different than the good another produces.
C) the good one firm produces is exactly then same as the good another firm produces.
D) that no buyer will pay more for one firm's good than another's.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
59. Under perfect competition, the supply curve is

A) the marginal cost curve for all price quantity combinations.
B) the marginal cost curve, but only that portion that is downward sloping.
C) the marginal cost curve, but only that portion that is upward sloping.
D) the marginal cost curve, but only that portion that is above the minimum of average
variable cost.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
60. There will be short-run pressure on the price to rise whenever

A) P>ATC.
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B) P=ATC.
C) P<ATC.
D) P<AVC.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
61. There will be long-run pressure on the price to rise whenever

A) P>ATC
B) P<ATC
C) P<AVC
D) b) and c)
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
62. There will be short-run pressure on the price to fall whenever

A) P>ATC
B) P=ATC
C) P<ATC
D) P<AVC
Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
63. There will be long-run pressure on the price to fall whenever

A) P>ATC
B) P=ATC
C) P<ATC
D) P<AVC
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Answer: A
Blooms: Evaluate
Difficulty: 3 Hard
64. Very high four-firm concentration ratios characterize the

A) furniture industry.
B) beer industry.
C) clothing industry.
D) computer and peripherals industry.
Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
65. Very low four-firm concentration ratios characterize the

A) breakfast cereal industry
B) beer industry
C) furniture industry
D) cellular telephone service industry
Answer: C
Blooms: Remember
Difficulty: 1 Easy
66. Midwestern grain farmers are characterized as "perfectly competitive" because they
A) pitch in energetically to help a neighbor raise a new barn.
B) must adjust the price of their product in order to increase the quantity that they sell.
C) are represented by very influential lobbyists in Washington.
D) can increase the quantity that they sell without affecting the market price.
Answer: D
Blooms: Remember
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Difficulty: 1 Easy
67. Microsoft is a dominant producer of operating system software for personal computers
because
A) its Windows product was one of the first to appear in the market.
B) Linux and OS2 were unstable and vulnerable to frequent security failures.
C) the U.S. Justice Department has always encouraged Microsoft to dominate its market.
D) all of the above.
Answer: A
Blooms: Apply
68. A reduction in the market price of the product is least likely to be required to enable
A) Microsoft to sell more copies of Windows.
B) a single Midwestern grain farmer to sell a larger harvest of grain.
C) Apple to sell more of its iPhones.
D) Verizon to increase its number of cellular telephone service subscribers.
Answer: B
Blooms: Apply
69. A reduction in the market price of the product is most likely to be required to enable
A) a single Northwestern logging company to sell a larger quantity of timber.
B) a single Midwestern grain farmer to sell a larger harvest of grain.
C) a single Pacific Coast fishing trawler to sell a larger quantity of tuna
D) Apple to sell more of its iPhones.
Answer: D
Blooms: Apply
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70. If a competitive firm routinely earns a larger profit than the "normal profit" for its
industry
A) the firm's owners are likely to withdraw from the industry in order to retire early.
B) new firms are likely to enter the industry, pushing up the prevailing market price.
C) new firms are likely to enter the industry, depressing the prevailing market price.
D) the firm will continue to earn its "normal profits" far into the future.
Answer: C
Blooms: Apply
71. Suppose a farmer earns a larger profit than the "normal profit" by producing a special
type of vegetable that becomes popular
A) the farm's owners are likely to withdraw from the industry in order to retire early.
B) other farmers are likely to plant the same vegetable, pushing up the prevailing market
price.
C) other farmers are likely to plant the same vegetable, pushing down the prevailing
market price.
Answer: C
Blooms: Apply
72. Suppose a farmer earns a larger profit than the "normal profit" by producing a special
type of milk that becomes popular
A) the farm's owners are likely to withdraw from the industry in order to retire early.
B) other farmers are likely to produce the same milk, pushing up the prevailing market
price.
C) other farmers are likely to produce the same milk, pushing down the prevailing market
price.
Answer: C
Blooms: Apply
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73. The first firm in an industry

A) will always make an economic profit.
B) may make an economic profit.
C) will make a loss but want to stay in business.
D) will make a loss so large that it wants to shutdown.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
74. Under monopolistic competition there are

A) identical products.
B) high barriers to entry.
C) low barriers to entry.
D) so many firms that no one can control the price.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
75. Under oligopoly there are

A) identical products.
B) high barriers to entry.
C) low barriers to entry.
D) so many firms that no one can control the price.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
76. Monopolistically competitive firms are

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A) Price makers
B) Price takers
C) Price excluders
D) Price includes
Answer: A
Blooms: Understand
Difficulty: 1 Easy
77. If entry is completely free, the demand curve for the leading, profit-making monopolistic
competitor will
A) Become steeper while moving to the right.
B) Move to the left until where MC=MR is where the ATC curve is tangent to the
demand curve.
C) Move to the left until where MC=MR is where the AVC curve is tangent to the
demand curve.
D) Move to the right until where MC=MR is where the ATC curve is tangent to the
demand curve.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
78. What moves when there is entry in monopolistic competition

A) The supply curve.
B) The demand curve only.
C) The demand curve and the marginal revenue curve.
D) The marginal revenue curve only.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
79. When a firm creates an industry

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A) It is there’s forever. No other firm can enter.
B) Depending on the ease of entry, the firm’s economic profit is likely to diminish.
C) The firm’s economic profit will rise because other firms will enter.
D) The firm’s economic profit will stabilize.
Answer: B
Blooms: Understand
Difficulty: 1 Easy
80. When there are significant barriers to entry and there are few firms in the industry
A) economic profit will continue for the firms in the industry.
B) economic profit will go to zero.
C) normal profit will be garnered by the firms.
D) at least one will exit until the economic profit disappears.
Answer: A
Blooms: Understand
Difficulty: 1 Easy
81. When there are significant barriers to entry and there are few firms in the industry we
label this
C) monopoly.
D) oligopoly.
Answer: D
Blooms: Understand
Difficulty: 1 Easy
82. If there are two airlines selling service between city A and city B the best model to
analyze this market is
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C) monopoly.
D) oligopoly.
Answer: C
Blooms: Understand
Difficulty: 1 Easy
83. There are thousands of broadband internet providers in the country, while in a particular
city the only way you can get it is through the phone, the cable company, and through
DIRECTV. The best model to analyze this market is
C) oligopoly.
D) monopoly.
Answer: C
Blooms: Apply
84. There are thousands of electric companies in the country, while in a particular city there
is only one. The best model to analyze this market is
C) oligopoly.
D) monopoly.
Answer: D
Blooms: Apply
85. There are one-half million grain farmers in the country producing corn. The best model to
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C) oligopoly.
D) monopoly.
Answer: A
Blooms: Apply
86. There are a quarter of a million dairy farmers in the country. The best model to analyze
this market is
C) oligopoly.
D) monopoly.
Answer: A
Blooms: Apply
87. There are dozens of sit-down restaurants in a large city in dozens of locations. The best
model to analyze this market is
C) oligopoly.
D) monopoly.
Answer: B
Blooms: Apply
88. There are two large chain coffee houses and McDonalds that all produce Frappuccinos in
dozens of locations in a large city. The best model to analyze this market is
C) oligopoly.
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D) monopoly.
Answer: C
Blooms: Apply
89. There are fifteen airlines that will take you from New York to L.A. The best model to
C) oligopoly.
D) monopoly.
Answer: B
Blooms: Apply
90. There are hundreds of companies in the business of providing natural gas to residential
users. For the most part, these local gas companies each only serve their local community
and so they buy in very competitive markets but sell locally and without competitors. The
wholesale market is therefore likely to be
C) oligopoly.
D) monopoly.
Answer: A
Blooms: Apply
91. There are hundreds of companies in the business of providing natural gas to residential
users. For the most part, these local gas companies each only serve their local community
and so they buy in very competitive markets but sell locally and without competitors. The
retail market is therefore likely to be
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C) oligopoly.
D) monopoly.
Answer: D
Blooms: Apply
92. An industry which has a 4-firm concentration ratio near 0 would best be described as
C) oligopoly.
D) monopoly.
Answer: A
Blooms: Apply
C) oligopoly.
D) monopoly.
Answer: B
Blooms: Apply
C) oligopoly or a monopoly depending on the size of the biggest firm.
D) clearly a monopoly.
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Answer: C
Blooms: Apply
95. An industry which Herfindahl-Hershman Index of 10,000 would best be described as

C) oligopoly.
D) monopoly.
Answer: D
Blooms: Apply

C) oligopoly.
D) monopoly.
Answer: B
Blooms: Apply

C) oligopoly.
D) monopoly.
Answer: C
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Blooms: Apply
98. If an industry has 100 firms and its Herfindahl-Hershman Index is 100 would best be
described as
C) oligopoly.
D) monopoly.
Answer: A
Blooms: Apply
99. Suppose there are 5 makers of tablet computers with market shares of 80%, 5%, 5%, 5%,
and 5% respectively. The HHI is
A) 0.
B) 20.
C) 6,500.
D) 10,000.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
100. Suppose there are 11 automakers. The top three have 20% of the market each, and
the remaining eight six divide remaining market share evenly. The HHI is
A) 0.
B) 909.
C) 1,400.
D) 10,000
Answer: C
Blooms: Evaluate
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Difficulty: 3 Hard
Figure 5.8
101. In Figure 5.8, if the supply curve moves from S1 to S2

A) The firm will make a smaller economic profit than they used to
B) The firm will go from making an economic profit to a normal profit
C) The firm will go from making an economic profit to a loss
D) The firm will go from making normal profits to a loss
Answer: A
Topic: Supply Under Perfect Competition
Blooms: Evaluate
Difficulty: 3 Hard

Answer: B
Blooms: Evaluate
Difficulty: 3 Hard
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C) The firm will go from making an economic profit to a loss but one that is not big
enough to make it want to shutdown.
D) The firm will go from making an economic profit to a loss that is big enough to make
it want to shutdown.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard

Answer: D
Blooms: Evaluate
Difficulty: 3 Hard

Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
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Answer: C
Blooms: Evaluate
Difficulty: 3 Hard

Answer: D
Blooms: Evaluate
Difficulty: 3 Hard

C) The firm will go from making a normal profit to a loss but one that is not big enough
to make it want to shutdown.
D) The firm will go from making a normal profit to a loss that is big enough to make it
want to shutdown.
Answer: C
Blooms: Evaluate
Difficulty: 3 Hard
Page 44
C) The firm will go from making a normal profit to a loss but one that is not big enough
to make it want to shutdown.
D) The firm will go from making a normal profit to a loss that is big enough to make it
want to shutdown.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard

C) The firm will go from making a loss to a bigger loss that is big enough to make it
want to shutdown,
D) The firm will go from making a loss to a bigger loss but one that is not big enough to
make it want to shutdown.
Answer: D
Blooms: Evaluate
Difficulty: 3 Hard
111. Under perfect competition, the firm’s supply curve is made up of the
A) Points where MC=MR
B) Points where MC=MR and they make a profit
C) Points where MC=MR and they make at least breakeven
D) Points where MC=MR above the minimum of AVC
Answer: D
Blooms: Understand
Difficulty: 1 Easy
Page 45
112. Under perfect competition, the firm’s supply curve is their
A) Marginal cost curve above the minimum of ATC
B) Marginal cost curve above the minimum of AVC
C) The upward sloping portion of the marginal cost curve
D) The entire marginal cost curve
Answer: D
Blooms: Understand
Difficulty: 1 Easy
113. In perfect competition and ____ economic profit will move towards zero
A) Monopoly
B) Monopolistic competition
C) Oligopoly
D) Natural monopoly
Answer: B
Blooms: Understand
Difficulty: 1 Easy
114. In monopolistic competition and ____ economic profit will move towards zero
A) Monopoly
B) Perfect competition
C) Oligopoly
D) Natural monopoly
Answer: B
Blooms: Understand
Difficulty: 1 Easy
115. The assumption for perfect competition and monopolistic competition that
enables economic profit to move towards zero is
A) Freedom of Entry and Exit
B) Perfect Information
C) Homogeneous products
D) Government involvement
Page 46
Answer: A
Blooms: Understand
Difficulty: 1 Easy
116. The freedom of entry and exit is key to pressuring economic profit to zero under
A) Perfect competition and monopolistic competition
B) Oligopoly and monopoly
C) Monopoly and Perfect competition
D) Monopoly and monopolistic competition
Answer: A
Blooms: Understand
Difficulty: 1 Easy
117. The absence of freedom of entry and exit is key to fact that there is no pressure
for economic profit to go to zero under
A) Perfect competition and monopolistic competition
B) Oligopoly and monopoly
C) Monopoly and Perfect competition
D) Monopoly and monopolistic competition
Answer: B
Blooms: Understand
Difficulty: 1 Easy
118. In the production of cell phones, Apple and Samsung are ____ and so there is
____ on economic profits to go to zero.
A) Oligopolists; no pressure
B) Perfect competitors; pressure
C) Monopolists; no pressure
D) Oligopolists; pressure
Answer: A
Blooms: Apply
Page 47
E)
119. In the production of corn, millions of farmers world-wide are ____ and so there is
____ on economic profits to go to zero.
A) Oligopolists; no pressure
B) Perfect competitors; pressure
C) Monopolists; no pressure
D) Oligopolists; pressure
Answer: B
Blooms: Apply
Page 48

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Issues in Economics Today 8th Edition Guell Test Bank 1

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Chapter 5

Perfect Competition, Monopoly and Economic Versus Normal Profit

1. In Figure 5.1, what output would a perfect competitor produce?

3. In Figure 5.2, what output would a perfect competitor produce?

4. In Figure 5.3, what output would a perfect competitor produce?

5. In Figure 5.4, a monopolist would charge which price?

6. In Figure 5.5, a monopolist would charge which price?

7. In Figure 5.5, what profit would the monopolist earn?

8. In Figure 5.6, a monopolist would charge which price?

10. Which of the following is not an assumption of perfect competition?

11. Which of the following is not an assumption of perfect competition?

12. Perfect competition means that firms are

14. The typical firm in perfect competition is

15. A firm that has a branded product is

16. For a market to be characterized by perfect competition, there must be

17. For a market to be characterized by monopoly, there must be

18. For a market to be characterized by monopoly, there must be

20. The key difference(s) between monopoly and oligopoly is

22. The firm’s supply curve is their

23. Agricultural Products can be modeled best using the model of

24. Lumber Products can be modeled best using the model of

44. An indicator of the degree of competition in an industry is the concentration ratio. It

54. If MR>MC then when an additional unit is sold the firm's

55. Economic Profit exists whenever

56. Normal Profit is what a firm

59. Under perfect competition, the supply curve is

60. There will be short-run pressure on the price to rise whenever

61. There will be long-run pressure on the price to rise whenever

62. There will be short-run pressure on the price to fall whenever

63. There will be long-run pressure on the price to fall whenever

64. Very high four-firm concentration ratios characterize the

65. Very low four-firm concentration ratios characterize the

73. The first firm in an industry

74. Under monopolistic competition there are

75. Under oligopoly there are

76. Monopolistically competitive firms are

78. What moves when there is entry in monopolistic competition

79. When a firm creates an industry

95. An industry which Herfindahl-Hershman Index of 10,000 would best be described as

96. An industry which Herfindahl-Hershman Index of 1,000 would best be described as

97. An industry which Herfindahl-Hershman Index of 4,000 would best be described as

101. In Figure 5.8, if the supply curve moves from S1 to S2

102. In Figure 5.8, if the supply curve moves from S1 to S3

104. In Figure 5.8, if the supply curve moves from S1 to S5

105. In Figure 5.8, if the supply curve moves from S2 to S3

107. In Figure 5.8, if the supply curve moves from S2 to S5

108. In Figure 5.8, if the supply curve moves from S3 to S4

110. In Figure 5.8, if the supply curve moves from S4 to S5

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