AP Micro Unit 5 Test

AP Micro Unit 5 Test
Student: ___________________________________________________________________________
1. Monopolistic competition means:
A.a market situation where competition is based entirely on product differentiation and advertising.
B.a large number of firms producing a standardized or homogeneous product.
C.many firms producing differentiated products.
D.a few firms producing a standardized or homogeneous product.
2. Monopolistic competition resembles pure competition because:
A.both industries emphasize nonprice competition.

B.in both instances firms will operate at the minimum point on their long-run average total cost curves.
C.both industries entail the production of differentiated products.
D.barriers to entry are either weak or nonexistent.
3. Which of the following is not a basic characteristic of monopolistic competition?
A.the use of trademarks and brand names

B.recognized mutual interdependence
C.product differentiation
D.a relatively large number of sellers
4. Nonprice competition refers to:
A.competition between products of different industries, for example, competition between aluminum
and steel in the manufacture of automobile parts.
B.price increases by a firm that are ignored by its rivals.
C.advertising, product promotion, and changes in the real or perceived characteristics of a product.
D.reductions in production costs that are not reflected in price reductions.
5. A monopolistically competitive firm has a:
A.highly elastic demand curve.

B.highly inelastic demand curve.
C.perfectly inelastic demand curve.
D.perfectly elastic demand curve.
1
6. The monopolistically competitive seller's demand curve will become more elastic the:
A.more significant the barriers to entering the industry.

B.greater the degree of product differentiation.
C.larger the number of competitors.
D.smaller the number of competitors.
7. The demand curve of a monopolistically competitive producer is:
A.less elastic than that of either a pure monopolist or a pure competitor.

B.less elastic than that of a pure monopolist, but more elastic than that of a pure competitor.
C.more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.
D.more elastic than that of either a pure monopolist or a pure competitor.
8. In the short-run, the price charged by a monopolistically competitive firm attempting to maximize
profits:
A.must be less than ATC.

B.must be more than ATC.
C.may be either equal to ATC, less than ATC, or more than ATC.
D.must be equal to ATC.
9. In the long-run, the price charged by the monopolistically competitive firm attempting to maximize
profits:
A.must be less than ATC.

B.must be more than ATC.
C.may be either equal to ATC, less than ATC, or more than ATC.
D.will be equal to ATC.
10. Monopolistically competitive firms:
A.realize normal profits in the short run but losses in the long run.
B.incur persistent losses in both the short run and long run.
C.may realize either profits or losses in the short run, but realize normal profits in the long run.
D.persistently realize economic profits in both the short run and long run.
2
11. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This firm's
profit-maximizing price will be:
A.$10.
B.$13.
C.$16.
D.$19.
12. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. The profit-
maximizing output for this firm will be:
A.210.
B.180.
C.160.
D.100.
13. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This firm
will realize an economic:
A.loss of $320.
B.loss of $480.
C.profit of $280.
D.profit of $600.
3
14. Refer to the above diagram for a monopolistically competitive firm. Long-run equilibrium price will be:
A.above A.
B.EF.
C.A.
D.B.
15. Refer to the above diagram for a monopolistically competitive firm. Long-run equilibrium output will
be:
A.greater than E.
B.E.
C.D.
D.C.
16. In the long run, new firms will enter a monopolistically competitive industry:
A.provided economies of scale are being realized.

B.even though losses are incurred in the short run.
C.until minimum average total cost is achieved.
D.until economic profits are zero.
17. If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms
will:
A.be unaffected.
B.shift to the left.
C.become more elastic.
D.shift to the right.
4
18. Other things equal, if more firms enter a monopolistically competitive industry:
A.the demand curves facing existing firms would shift to the right.
B.the demand curves facing existing firms would shift to the left.
C.the demand curves facing existing firms would become less elastic.
D.losses would necessarily occur.
19. In an oligopolistic market:
A.one firm is always dominant.

B.products may be standardized or differentiated.
C.the four largest firms account for 20 percent or less of total sales.
D.the industry is monopolistically competitive.
20. Oligopolistic industries are characterized by:
A.a few dominant firms and substantial entry barriers.

B.a few dominant firms and no barriers to entry.
C.a large number of firms and low entry barriers.
D.a few dominant firms and low entry barriers.
21. The mutual interdependence that characterizes oligopoly arises because:
A.the products of various firms are homogeneous.

B.the products of various firms are differentiated.
C.a small number of firms produce a large proportion of industry output.
D.the demand curves of firms are kinked at the prevailing price.
22. The copper, aluminum, cement, and industrial alcohol industries are examples of:
A.interproduct competition.
B.homogeneous oligopoly.
C.monopolistic competition.
D.differentiated oligopoly.
23. Mutual interdependence means that each oligopolistic firm:
A.faces a perfectly elastic demand for its product.

B.must consider the reactions of its rivals when it determines its price policy.
C.produces a product identical to those of its rivals.
D.produces a product similar but not identical to the products of its rivals.
5
24. Game theory:
A.is the analysis of how people (or firms) behave in strategic situations.
B.is best suited for analyzing purely competitive markets.
C.reveals that mergers between rival firms are self-defeating.
D.reveals that price-fixing among firms reduces profits.
25. Game theory can be used to demonstrate that oligopolists:
A.rarely consider the potential reactions of rivals.

B.experience economies of scale.
C.can increase their profits through collusion.
D.may be either homogeneous or differentiated.
26. Refer to the above game theory matrix where the numerical data show the profits resulting from
alternative combinations of advertising strategies for Ajax and Acme. Ajax's profits are shown in the
upper right part of each cell; Acme's profits are shown in the lower left. Without collusion, the outcome
of the game is cell:
A.A.
B.B.
C.C.
D.D.
6
upper right part of each cell; Acme's profits are shown in the lower left. With collusion and no cheating,
the outcome of the game is cell:
A.A.
B.B.
C.C.
D.D.
28. In which of the following industry structures is the entry of new firms the most difficult?
A.pure monopoly
B.oligopoly
C.monopolistic competition
D.pure competition
29. An industry comprised of four firms, each with approximately 25 percent of the total market for a
product, is an example of:
A.monopolistic competition.
B.oligopoly.
C.pure monopoly.
D.pure competition.
30. An industry comprised of a very large number of sellers that are producing a homogeneous or
standardized product is called:
A.monopolistic competition.
B.oligopoly.
C.pure monopoly.
D.pure competition.
31. In which of the following market models do individual firms exert no control over product price?
A.oligopoly
B.pure monopoly
C.monopolistic competition
D.pure competition
7
32. Refer to the above figures. A homogeneous or standardized product is most likely to be produced in:
A.Figure A.
B.Figure B.
C.Figure C.
D.Figure D.
33. Refer to the above figures. Industry entry is likely to be most difficult in:
A.Figure A.
B.Figure B.
C.Figure C.
D.Figure D.
34. Refer to the above figures. Long-run economic profits are most likely to occur in:
A.Figures A and B.
B.Figure B only.
C.Figure D.
D.Figures A and C.
8
35. Refer to the above figures. Government regulation of price and service is most likely to occur in:
A.Figure A only.
B.Figure D only.
C.Both Figures A and C.
D.Both Figures A and D.
36. Refer to the above figures. Product differentiation may be present in:
A.Figure A only.
B.Figure B only.
C.Figure C only.
D.Both Figures C and D.
37. Refer to the above figures. Collusion is most likely to occur in the industry(ies) represented by:
A.Figure A.
B.Figure B.
C.Figure C.
D.Both Figures B and D.
38. Refer to the above figures. Both allocative and productive efficiency are being realized in:
A.All four figures.

B.Figures B and D.
C.Figure D only.
D.Figure B only.
39. Refer to the above figures. We would expect industry entry and exit to be relatively easy in:
A.Figure A only.
B.Figure C only.
C.Both Figures A and C.
D.Both Figures B and D.
40. The purely competitive market model is portrayed in the above figures by:
A.Figure A.
B.Figure B.
C.Both Figures B and D.
D.Figure C.
9
10
AP Micro Unit 5 Test Key
1. Monopolistic competition means:
a. a market situation where competition is based entirely on product differentiation and advertising.
b. a large number of firms producing a standardized or homogeneous product.
C many firms producing differentiated products.
d. a few firms producing a standardized or homogeneous product.
Economics Page: 445

Learning Objective: 23-1
McConnell - Chapter 023 #1
Microeconomics Page: 211
Topic: 1
Type: Definition
2. Monopolistic competition resembles pure competition because:
a. both industries emphasize nonprice competition.

b. in both instances firms will operate at the minimum point on their long-run average total cost
curves.
c. both industries entail the production of differentiated products.
D barriers to entry are either weak or nonexistent.
Economics Page: 446

Topic: 1
Type: Application of Concept
3. Which of the following is not a basic characteristic of monopolistic competition?
a. the use of trademarks and brand names

B recognized mutual interdependence
c. product differentiation
d. a relatively large number of sellers
Economics Page: 445-446

Microeconomics Page: 211-212
Topic: 1
1
4. Nonprice competition refers to:
a. competition between products of different industries, for example, competition between aluminum
and steel in the manufacture of automobile parts.
b. price increases by a firm that are ignored by its rivals.
C advertising, product promotion, and changes in the real or perceived characteristics of a product.
d. reductions in production costs that are not reflected in price reductions.
Economics Page: 446

Topic: 1
Type: Definition
5. A monopolistically competitive firm has a:
A highly elastic demand curve.

b. highly inelastic demand curve.
c. perfectly inelastic demand curve.
d. perfectly elastic demand curve.
Economics Page: 446

Topic: 2
Type: Definition
6. The monopolistically competitive seller's demand curve will become more elastic the:
a. more significant the barriers to entering the industry.

b. greater the degree of product differentiation.
C larger the number of competitors.
d. smaller the number of competitors.
Economics Page: 448

Topic: 2
2
7. The demand curve of a monopolistically competitive producer is:
a. less elastic than that of either a pure monopolist or a pure competitor.

b. less elastic than that of a pure monopolist, but more elastic than that of a pure competitor.
C more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.
d. more elastic than that of either a pure monopolist or a pure competitor.
Economics Page: 448

Topic: 2
8. In the short-run, the price charged by a monopolistically competitive firm attempting to maximize
profits:
a. must be less than ATC.

b. must be more than ATC.
C may be either equal to ATC, less than ATC, or more than ATC.
d. must be equal to ATC.
Economics Page: 447

Status: New
Topic: 3
9. In the long-run, the price charged by the monopolistically competitive firm attempting to maximize
profits:
a. must be less than ATC.

b. must be more than ATC.
c. may be either equal to ATC, less than ATC, or more than ATC.
D will be equal to ATC.
Economics Page: 448

Status: New
Topic: 3
3
10. Monopolistically competitive firms:
a. realize normal profits in the short run but losses in the long run.
b. incur persistent losses in both the short run and long run.
C may realize either profits or losses in the short run, but realize normal profits in the long run.
d. persistently realize economic profits in both the short run and long run.
Economics Page: 448

Topic: 3
McConnell - Chapter 023
11. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This
firm's profit-maximizing price will be:
a. $10.
b. $13.
C $16.
d. $19.
Economics Page: 447

Topic: 3
Type: Graphical
4
12. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. The
profit-maximizing output for this firm will be:
a. 210.
b. 180.
C 160.
d. 100.
Economics Page: 447

Topic: 3
Type: Graphical
13. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This
firm will realize an economic:
a. loss of $320.
B loss of $480.
c. profit of $280.
d. profit of $600.
Economics Page: 447

Status: New
Topic: 3
Type: Graphical
5
14. Refer to the above diagram for a monopolistically competitive firm. Long-run equilibrium price will
be:
a. above A.
b. EF.
C A.
d. B.
Economics Page: 447

Topic: 3
Type: Graphical
15. Refer to the above diagram for a monopolistically competitive firm. Long-run equilibrium output will
be:
a. greater than E.
b. E.
C D.
d. C.
Economics Page: 447

Topic: 3
Type: Graphical
16. In the long run, new firms will enter a monopolistically competitive industry:
a. provided economies of scale are being realized.

b. even though losses are incurred in the short run.
c. until minimum average total cost is achieved.
D until economic profits are zero.
Economics Page: 448

Topic: 3
6
17. If some firms leave a monopolistically competitive industry, the demand curves of the remaining
firms will:
a. be unaffected.
b. shift to the left.
c. become more elastic.
D shift to the right.
Economics Page: 448

Topic: 3
18. Other things equal, if more firms enter a monopolistically competitive industry:
a. the demand curves facing existing firms would shift to the right.
B the demand curves facing existing firms would shift to the left.
c. the demand curves facing existing firms would become less elastic.
d. losses would necessarily occur.
Economics Page: 448

Topic: 3
19. In an oligopolistic market:
a. one firm is always dominant.

B products may be standardized or differentiated.
c. the four largest firms account for 20 percent or less of total sales.
d. the industry is monopolistically competitive.
Economics Page: 451

Topic: 5
7
20. Oligopolistic industries are characterized by:
A a few dominant firms and substantial entry barriers.

b. a few dominant firms and no barriers to entry.
c. a large number of firms and low entry barriers.
d. a few dominant firms and low entry barriers.
Economics Page: 451

Topic: 5
Type: Definition
21. The mutual interdependence that characterizes oligopoly arises because:
a. the products of various firms are homogeneous.

b. the products of various firms are differentiated.
C a small number of firms produce a large proportion of industry output.
d. the demand curves of firms are kinked at the prevailing price.
Economics Page: 451

Topic: 5
22. The copper, aluminum, cement, and industrial alcohol industries are examples of:
a. interproduct competition.
B homogeneous oligopoly.
c. monopolistic competition.
d. differentiated oligopoly.
Economics Page: 451

Topic: 5
8
23. Mutual interdependence means that each oligopolistic firm:
a. faces a perfectly elastic demand for its product.

B must consider the reactions of its rivals when it determines its price policy.
c. produces a product identical to those of its rivals.
d. produces a product similar but not identical to the products of its rivals.
Economics Page: 451

Topic: 5
Type: Definition
24. Game theory:
A is the analysis of how people (or firms) behave in strategic situations.

b. is best suited for analyzing purely competitive markets.
c. reveals that mergers between rival firms are self-defeating.
d. reveals that price-fixing among firms reduces profits.
Economics Page: 453

Topic: 7
25. Game theory can be used to demonstrate that oligopolists:
a. rarely consider the potential reactions of rivals.

b. experience economies of scale.
C can increase their profits through collusion.
d. may be either homogeneous or differentiated.
Economics Page: 454

Topic: 7
9
upper right part of each cell; Acme's profits are shown in the lower left. Without collusion, the
outcome of the game is cell:
A A.
b. B.
c. C.
d. D.
Economics Page: 453

Topic: 7
10
upper right part of each cell; Acme's profits are shown in the lower left. With collusion and no
cheating, the outcome of the game is cell:
a. A.
b. B.
c. C.
D D.
Economics Page: 453

Topic: 7
28. In which of the following industry structures is the entry of new firms the most difficult?
A pure monopoly
b. oligopoly
c. monopolistic competition
d. pure competition
Economics Page: 451

Topic: 12
29. An industry comprised of four firms, each with approximately 25 percent of the total market for a
product, is an example of:
a. monopolistic competition.
B oligopoly.
c. pure monopoly.
d. pure competition.
Economics Page: 451

Topic: 12
11
30. An industry comprised of a very large number of sellers that are producing a homogeneous or
standardized product is called:
a. monopolistic competition.
b. oligopoly.
c. pure monopoly.
D pure competition.
Economics Page: 400

Topic: 12
31. In which of the following market models do individual firms exert no control over product price?
a. oligopoly
b. pure monopoly
c. monopolistic competition
D pure competition
Economics Page: 400

Topic: 12
32. Refer to the above figures. A homogeneous or standardized product is most likely to be produced in:
a. Figure A.
B Figure B.
c. Figure C.
d. Figure D.
Economics Page: 407

Topic: 12
Type: Graphical
12
33. Refer to the above figures. Industry entry is likely to be most difficult in:
A Figure A.
b. Figure B.
c. Figure C.
d. Figure D.
Economics Page: 430

Topic: 12
Type: Graphical
34. Refer to the above figures. Long-run economic profits are most likely to occur in:
a. Figures A and B.
b. Figure B only.
c. Figure D.
D Figures A and C.
Economics Page: 430

Topic: 12
Type: Graphical
13
35. Refer to the above figures. Government regulation of price and service is most likely to occur in:
A Figure A only.
b. Figure D only.
c. Both Figures A and C.
d. Both Figures A and D.
Economics Page: 430

Topic: 12
Type: Graphical
36. Refer to the above figures. Product differentiation may be present in:
a. Figure A only.
b. Figure B only.
c. Figure C only.
D Both Figures C and D.
Economics Page: 447, 456

Microeconomics Page: 213, 222
Topic: 12
Type: Graphical
37. Refer to the above figures. Collusion is most likely to occur in the industry(ies) represented by:
a. Figure A.
b. Figure B.
C Figure C.
d. Both Figures B and D.
Economics Page: 456

Topic: 12
Type: Graphical
14
38. Refer to the above figures. Both allocative and productive efficiency are being realized in:
a. All four figures.

b. Figures B and D.
c. Figure D only.
D Figure B only.
Economics Page: 417

Topic: 12
Type: Graphical
39. Refer to the above figures. We would expect industry entry and exit to be relatively easy in:
a. Figure A only.
b. Figure C only.
c. Both Figures A and C.
D Both Figures B and D.
Economics Page: 413, 447

Topic: 12
Type: Graphical
40. The purely competitive market model is portrayed in the above figures by:
a. Figure A.
B Figure B.
c. Both Figures B and D.
d. Figure C.
Economics Page: 413

Topic: 12
Type: Graphical
15
AP Micro Unit 5 Test Summary
Category # of
Questions
Economics Page: 400 2
Economics Page: 413, 447 1
Economics Page: 445-446 1
Economics Page: 447, 456 1
Learning Objective: 23-1 24
McConnell - Chapter 023 44
Microeconomics Page: 166 2
213
Microeconomics Page: 211-212 1
222
1
Status: New 3
Topic: 1 4
Topic: 12 13
Topic: 2 3
Topic: 3 11
Topic: 5 5
Topic: 7 4
Type: Application of Concept 21
Type: Definition 5
Type: Graphical 14

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AP Micro Unit 5 Test

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AP Micro Unit 5 Test

1. Monopolistic competition means:

2. Monopolistic competition resembles pure competition because:

A.both industries emphasize nonprice competition.

3. Which of the following is not a basic characteristic of monopolistic competition?

A.the use of trademarks and brand names

4. Nonprice competition refers to:

5. A monopolistically competitive firm has a:

A.highly elastic demand curve.

A.more significant the barriers to entering the industry.

7. The demand curve of a monopolistically competitive producer is:

A.less elastic than that of either a pure monopolist or a pure competitor.

A.must be less than ATC.

A.must be less than ATC.

10. Monopolistically competitive firms:

A.provided economies of scale are being realized.

19. In an oligopolistic market:

A.one firm is always dominant.

20. Oligopolistic industries are characterized by:

A.a few dominant firms and substantial entry barriers.

21. The mutual interdependence that characterizes oligopoly arises because:

A.the products of various firms are homogeneous.

23. Mutual interdependence means that each oligopolistic firm:

A.faces a perfectly elastic demand for its product.

25. Game theory can be used to demonstrate that oligopolists:

A.rarely consider the potential reactions of rivals.

A.All four figures.

1. Monopolistic competition means:

Economics Page: 445

2. Monopolistic competition resembles pure competition because:

a. both industries emphasize nonprice competition.

Economics Page: 446

3. Which of the following is not a basic characteristic of monopolistic competition?

a. the use of trademarks and brand names

Economics Page: 445-446

Economics Page: 446

5. A monopolistically competitive firm has a:

A highly elastic demand curve.

Economics Page: 446

a. more significant the barriers to entering the industry.

Economics Page: 448

a. less elastic than that of either a pure monopolist or a pure competitor.

Economics Page: 448

a. must be less than ATC.

Economics Page: 447

a. must be less than ATC.

Economics Page: 448

Economics Page: 448

McConnell - Chapter 023

Economics Page: 447

Economics Page: 447

Economics Page: 447

McConnell - Chapter 023

Economics Page: 447

Economics Page: 447

a. provided economies of scale are being realized.

Economics Page: 448

Economics Page: 448

Economics Page: 448

19. In an oligopolistic market:

a. one firm is always dominant.

Economics Page: 451

A a few dominant firms and substantial entry barriers.

Economics Page: 451