PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc.

NGUYEN VIET HOA

CHAPTER 6: MARKET STRUCTURE

1. Which of the following is NOT a characteristic of a perfectly competitive market?
A. It has many buyers.
B. It has many sellers.
C. The products traded are identical across sellers.
D. Firms set the price.
2. Which of the following is NOT a characteristic of a perfectly competitive market?
A. Firms are price takers.
B. Firms have difficulty entering the market.
C. There are many sellers in the market.
D. Goods offered for sale are largely the same.
3. Which of the following is NOT a characteristic of a perfectly competitive market?
A. The products that each seller produces are identical.
B. There is perfect knowledge regarding the prices and qualities available to consumers.
C. Sellers compete with each other by charging different prices.
D. It is easy for sellers to enter and exit the market in the long run.
4. Which of following is a key assumption of a perfectly competitive market?
A. Commodities have few sellers
B. Firms can influence market price
C. It is difficult for new sellers to enter the market.
D. None of the above.
5. In a perfectly competitive market,
A. no single buyer or seller can influence the price of the product.
B. there is a small number of sellers.
C. the goods offered by the different sellers are markedly different.
D. All of the above are correct.
6. In a perfectly competitive market,
A. each seller can sell all he wants to sell at the going price.
B. buyers and sellers are price takers.
C. the goods offered by the different sellers are largely the same.
D. All of the above are correct.
7. Because the goods offered for sale in a competitive market are largely the same,
A. there will be few sellers in the market.
B. there will be few buyers in the market.
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C. buyers will have market power.

D. sellers will have little reason to charge less than the going market price.
8. As a seller, you would be considered part of a perfectly competitive market if
A. Your actions are quickly followed by competitors.
B. Your pricing has no impact on the amount you can sell.
C. Your actions essentially have no effect on the market price.
D. Increases in the price of your product have an impact on the market price.
9. In a competitive price-taker markets, firms are assumed to be producing
A. Identical products
B. Small products
C. Large products
D. Differentiated products
10. For perfectly competitive firms, advertisements are
A. Relatively necessary
B. Very necessary
C. Not necessary
D. Maybe useful for some firms
11. The demand curve facing a perfectly competitive firm is
A. the same as its marginal revenue curve, but not its average revenue curve.
B. the same as its average revenue curve, but not the same as its marginal revenue curve.
C. not the same as either its marginal revenue curve or its average revenue curve.
D. the same as its average revenue curve and its marginal revenue curve.
12. The demand curve facing a perfectly competitive firm is
A. perfectly elastic.
B. perfectly inelastic.
C. the same as the market demand curve.
D. downward-sloping and flatter than the market demand curve.
13. The market demand curve in perfectly competitive market is
A. Vertical
B. Horizontal
C. Upward sloping
D. Downward sloping
14. In a competitive market, the actions of any single buyer or seller will
A. have a negligible impact on the market price.
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

B. have little effect on overall production but will ultimately change final product price.
C. cause a noticeable change in overall production and a change in final product price.
D. adversely affect the profitability of more than one firm in the market.
15. For a firm in a perfectly competitive market, the price of the good is always
A. equal to marginal revenue.
B. equal to total revenue.
C. greater than average revenue.
D. All of the above are correct.
16. When firms are said to be price takers, it implies that if a firm raises its price,
A. buyers will go elsewhere.
B. buyers will pay the higher price in the short run.
C. competitors will also raise their prices.
D. firms in the industry will exercise market power.
17. Which of the following statements best reflects a price-taking firm?
A. If the firm were to charge more than the going price, it would sell none of its goods.
B. The firm has no incentive to charge less than the going price.
C. The firm can sell as much as it wants to sell at the going price.
D. All of the above are correct.
18. Of the following characteristics of competitive markets, which are necessary for firms
to be price takers?
(i) There are many sellers.
(ii) Firms can freely enter or exit the market.
(iii) Goods offered for sale are largely the same.
A. (i) and (ii) only
B. (i) and (iii) only
C. (ii) only
D. All are necessary.
19. Perfectly competitive firms have
A. downward-sloping demand curves and they can sell as much output as they desire at
the market price.
B. downward-sloping demand curves and they can sell only a limited quantity of output at
each price.
C. horizontal demand curves and they can sell as much output as they desire at the market
price.
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

D. horizontal demand curves and they can sell only a limited quantity of output at each
price.
20. The decision to select the best supplier in perfectly competitive market is
A. Not necessary
B. Very necessary
C. Necessary in some cases
D. Cannot conclude
21. For a competitive firm,
A. Total revenue = Average revenue.
B. Total revenue = Marginal revenue.
C. Total cost = Marginal revenue.
D. Average revenue = Marginal revenue.
22. For a competitive firm, marginal revenue is
A. total revenue divided by the quantity sold.
B. equal to the quantity of the good sold.
C. average revenue divided by the quantity sold.
D. equal to the price of the good sold.
23. For a competitive firm,
A. average revenue equals the price of the good, but marginal revenue is different.
B. marginal revenue equals the price of the good, but average revenue is different.
C. average revenue equals marginal revenue, but the price of the good is different.
D. average revenue, marginal revenue, and the price of the good are all equal to one
another.
24. If ABC Company sells its product in a competitive market, then
A. the price of that product depends on the quantity of the product that ABC Company
produces and sells.
B. ABC Company’s total revenue is proportional to its quantity of output.
C. ABC Company’s total cost is proportional to its quantity of output.
D. ABC Company’s total revenue is equal to its average revenue.
25. The total revenue of a firm in perfect competition
A. Is an upward sloping straight line
B. Is a downward sloping straight line
C. Increases when demand is elastic then declines
D. Is a horizontal line equal to price
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

26. Perfectly competitive firms can maximize total revenue when

A. Marginal revenue equals to zero
B. Marginal revenue equals to marginal cost
C. Total revenue equals to total cost
D. None of the above are correct
27. If a firm in a perfectly competitive market triples the number of units of output sold,
then total revenue will
A. more than triple.
B. less than triple.
C. exactly triple.
D. All of the above are potentially true.
28. If a perfectly competitive firm doubles its output from 3 to 6 units and market price
is $13, total revenue will
A. increase by less than $39
B. increase by exactly $39
C. increase by more than $39
D. It cannot be determined from the information provided.
29. Changes in the output of a perfectly competitive firm, without any change in the price
of the product, will change the firm’s
A. total revenue.
B. marginal revenue.
C. average revenue.
D. All of the above are correct.
30. If a firm in a competitive market reduces its output by 20 percent, then as a result the
price of its output is likely to
A. increase.
B. remain unchanged.
C. decrease by less than 20 percent.
D. decrease by more than 20 percent.
31. For any given price, a firm in a competitive market will maximize profit by selecting
the level of output at which price line intersects the
A. average total cost curve
B. average variable cost curve
C. marginal cost curve
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

D. marginal revenue curve

32. When a firm in a competitive market receives $500 in total revenue, it has a marginal
revenue of $10. What is the average revenue, and how many units were sold?
A. $5 and 100
B. $10 and 50
C. $10 and 100
D. The answer cannot be determined from the information given.
33. When a firm in a competitive market produces 10 units of output, it has a marginal
revenue of $8.00. What would be the firm’s total revenue when it produces 6 units of
output?
A. $4.80
B. $6.00
C. $48.00
D. $60.00
34. Which of the following statements is correct regarding a perfectly competitive firm’s
decision making?
A. The decision to shut down and the decision to exit are both short-run decisions
B. The decision to shut down and the decision to exit are both long-run decisions
C. The decision to shut down is a short-run decision, whereas the decision to exit is a long-
run decision
D. The decision to exit is a short-run decision, whereas the decision to shut down is a long-
run decision
35. A perfectly competitive firm can maximize profit when it produces output at the point
where
A. marginal cost curve intersects total revenue curve.
B. marginal cost curve intersects average revenue curve.
C. average total cost curve intersects marginal revenue curve.
D. average variable cost curve intersects marginal revenue curve.
36. If a competitive firm is producing a level of output where marginal revenue exceeds
marginal cost, the firm could increase profits if it
A. decreased production.
B. maintained production at the current level.
C. temporarily shut down.
D. increased production.
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37. If current output is less than the optimal output then the next unit produced
A. will decrease profit.
B. will increase cost more than it increases revenue.
C. will increase revenue more than it increases cost.
D. will increase revenue without increasing cost.
38. When price is greater than marginal cost for a firm in a competitive market,
A. marginal cost must be falling.
B. the firm must be minimizing its losses.
C. there are opportunities to increase profit by increasing production.
D. the firm should decrease output to maximize profit.
39. Firms that shut down in the short run still have to pay their
A. variable costs.
B. fixed costs.
C. total cost.
D. All of the above are correct.
40. If total revenue of a perfectly competitive firm can compensate for its variable cost
and a part of its fixed cost then it is producing at the output level
A. Greater than break-even point
B. Less than break-even point
C. Larger than shut-down point
D. Both B and C are correct
41. When a perfectly competitive firm makes a decision to shut down,
A. marginal cost is above average variable cost.
B. marginal cost is above average total cost.
C. price is below the minimum of average variable cost.
D. fixed costs exceed variable costs.
42. When total revenue is less than variable costs, a firm in a competitive market will
A. continue to operate as long as average revenue exceeds marginal cost.
B. continue to operate as long as average revenue exceeds average fixed cost.
C. shut down.
D. always exit the industry.
43. When price is below the minimum point of average variable cost, a firm in a
competitive market will
A. shut down and incur fixed costs.
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

B. shut down and incur both variable and fixed costs.

C. continue to operate as long as average revenue exceeds marginal cost.
D. continue to operate as long as average revenue exceeds average fixed cost.
44. A grocery store should close at night if the
A. variable costs of staying open are less than the total revenue due to staying open.
B. total costs of staying open are less than the total revenue due to staying open.
C. variable costs of staying open are greater than the total revenue due to staying open.
D. total costs of staying open are greater than the total revenue due to staying open.
45. If a competitive firm is (i) selling 1,000 units of its product at a price of $9 per unit
and (ii) earning a positive profit, then
A. its total cost is less than $9,000.
B. its marginal revenue is less than $9.
C. its average revenue is greater than $9.
D. All of the above are correct.
46. The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since
the market for wheat is generally considered to be competitive, the Wheeler Wheat Farm
maximizes its profit by choosing
A. to produce the quantity at which average total cost is minimized.
B. to produce the quantity at which average fixed cost is minimized.
C. to sell its wheat at a price where marginal cost is equal to average total cost.
D. the quantity at which market price is equal to the farm’s marginal cost of production.
47. To begin, a competitive firm is selling its output for $20 per unit and it is maximizing
its profit, which is positive. Now, the price rises to $25 and the firm makes whatever
adjustments are necessary to maximize its profit at the now-higher price. Once the firm
has adjusted, which of the following statements is correct?
A. The firm’s quantity of output is higher than it was previously
B. The firm’s average total cost is higher than it was previously
C. The firm’s average revenue is higher than it was previously
D. All of the above are correct
48. A perfectly competitive firm that shuts down temporarily
A. still has to pay its variable costs, but not its fixed costs
B. still has to pay its fixed costs, but not its variable costs
C. still has to pay both its variable costs and its fixed costs
D. has to pay neither its variable costs nor its fixed costs
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

49. A firm will shut down in the short run if the total revenue that it would get from
producing and selling its output is less than its
A. opportunity costs
B. fixed costs
C. variable costs
D. total costs
50. A firm will shut down in the short run if, for all positive levels of output,
A. its loss exceeds its fixed costs
B. its total revenue is less than its variable costs
C. the price of its product is less than its average variable cost
D. All of the above are correct
51. When a profit-maximizing firm in a competitive market is unable to generate enough
revenue to pay all of its fixed costs it should, in the short run,
A. shut down and incur a loss equal to its fixed costs.
B. shut down until it is able to produce where average revenue exceeds average fixed cost.
C. continue to produce as long as marginal cost is less than average revenue.
D. continue to produce as long as total revenue is sufficient to pay variable costs.
52. A profit-maximizing firm in a competitive market is able to sell its product for $9. At
its current level of output the firm’s average total cost is $11. Its marginal cost curve
crosses the marginal revenue curve at an output level of 10 units. Then the firm
experiences a
A. profit of more than $20.
B. profit of exactly $20.
C. loss of more than $20.
D. loss of exactly $20.
53. A profit-maximizing firm in a competitive market produces small rubber balls. When
the market price for small rubber balls falls below the minimum of its average total cost,
but still lies above the minimum of average variable cost, the firm
A. will experience losses but it will continue to produce rubber balls.
B. will shut down.
C. will be earning both economic and accounting profits.
D. should raise the price of its product.
54. Which of the following statements best reflects the production decision of a profit-
maximizing firm in a competitive market when price falls below the minimum of AVC?
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A. The firm will continue to produce to attempt to pay fixed costs.

B. The firm will immediately stop production to minimize its losses.
C. The firm will stop production as soon as it is able to pay its sunk costs.
D. The firm will continue to produce in the short run but will likely exit the market in the
long run.
55. A firm’s marginal cost has a minimum value of $2; its average variable cost has a
minimum value of $4; and its average total cost has a minimum value of $5. Then the firm
will shut down if the price of its product falls below
A. $2
B. $4
C. $5
D. There is not enough information given to answer the question
56. In 1999, sheepherders in the western United States slaughtered 10,000 sheep and
buried them in large open pits rather than truck them to the market to be sold. This
behavior is most likely explained by
A. sheepherders making a shut-down decision to save the variable cost of transporting
sheep to a slaughter house.
B. sheepherders making an exit decision to recover the fixed cost of raising the sheep.
C. the rising marginal cost of producing sheep.
D. irrational behavior of sheepherders.
57. A firm in a competitive market is currently producing 100 units of output. It has
average revenue of $10, and its average total cost is $8. It follows that the firm’s
A. average total cost curve intersects the marginal cost curve at an output level of less than
100 units.
B. average variable cost curve intersects the marginal cost curve at an output level of less
than 100 units.
C. profit is $200.
D. All of the above are correct.
58. Farley Frozen Yogurt is a perfectly competitive firm. The market price of a frozen
yogurt cake is $6. Farley sells 200 frozen yogurt cakes. Its AVC is $9 and its AFC is $2.
Farley should
A. Continue to produce even though it is losing money.
B. Decrease production to increase profits.
C. Increase production to increase profits.
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

D. Shut down immediately, it is losing money.

59. The supply curve of a firm in perfect competition in short-run is the segment of its
A. Marginal cost curve that lies above the minimum average total cost.
B. Marginal revenue curve that lies above the minimum average total cost.
C. Marginal cost curve that lies above the minimum average variable cost.
D. Marginal revenue curve that lies above the minimum average variable cost.
60. The short-run supply curve for a firm in a perfectly competitive market is
A. likely to be horizontal.
B. likely to slope downward.
C. determined by forces external to the firm.
D. its marginal cost curve (above average variable cost’s minimum point).
61. A competitive firm’s marginal cost curve is regarded as its supply curve because
A. the position of the marginal cost curve determines the price for which the firm should
sell its product.
B. among the various cost curves, the marginal cost curve is the only one that slopes
upward.
C. the marginal cost curve determines the quantity of output the firm is willing to supply
at any price.
D. the firm is aware that marginal revenue must exceed marginal cost in order for profit to
be maximized.
The graph below is used for questions number 62 and 63.

62. Which of the areas indicated in the diagram above represents the profits of the firm,
when producing 1500 units?
A. Area I
B. Area II
C. Area III
D. Area I plus area II
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

63. In the diagram above, is the firm producing the optimal output?
A. No, it should produce less output to increase profits.
B. No, it should produce more output to increase profits.
C. Yes, it is producing the optimal output.
D. There is not enough information to determine whether it is maximizing profit or not.
The graph below is used for questions number 64 and 65.

64. Refer to the graph above. What is the profit-maximizing quantity?

A. 500
B. 700
C. 850
D. 1000
65. Based on the graph above, which of the following statements is true?
A. The firm breaks even when producing 200 units
B. The firm breaks even when producing 1000 units
C. The firm minimizes its Average Variable Cost when producing 500 units
D. The firm maximizes its profits by producing 700 units
The graph below depicts the cost structure for a firm in a competitive market. Use the
graph to answer questions 66 through 68.

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66. When price is at P3, the profit-maximizing firm will produce what level of output?
A. Q1
B. Q2
C. Q3
D. Q4

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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

67. When market price is at P2, a firm producing output level Q1 would experience
A. profits equal to (P2 – P1)  Q1.
B. losses equal to (P2 – P1)  Q1.
C. losses because P2 < ATC at output level Q1.
D. zero profits.
68. When the price is P2 and the firm maximizes its profit or minimizes its loss, the firm
A. experiences a positive profit.
B. experiences a zero profit.
C. experiences a loss, but continues to operate.
D. shuts down.
The figure below depicts the cost structure of a firm in a competitive market. Use the
figure to answer questions 69 through 71.

69. When the market price is P1, this firm’s total revenue can be represented by the area
A. P1  Q2.
B. P2  Q2.
C. P3  Q2.
D. P1  Q3.
70. When the market price is P4, this firm’s total cost can be represented by the area
A. P4  Q1
B. P4  Q4
C. P2  Q4
D. Total costs cannot be determined from the information in the figure.
71. When the market price is P1, a profit-maximizing firm’s total profit or loss can be
represented by which area?
A. P1  Q3; profit
B. (P3 – P1)  Q2; loss

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C. (P2 – P1)  Q1; loss

D. We can’t tell because we don’t know fixed costs.
72. When a profit-maximizing firm in a competitive market has zero economic profit,
accounting profit
A. is negative (accounting losses).
B. is positive.
C. is also zero.
D. could be positive, negative or zero.
73. What is the value of the Lerner index under perfect competition?
A. 0
B. 1
C. Infinity
D. None of the above
74. The difference between a competitive firm and a monopoly firm is the ability to select
A. the level of competition in the market
B. the level of production
C. inputs in the production process
D. the price of its output
75. The market demand curve for a monopolist is typically
A. unitary elastic at the point of profit maximization
B. downward sloping
C. horizontal
D. vertical
76. A monopolist's average revenue is always
A. equal to marginal revenue
B. greater than the price of its product
C. equal to the price of its product
D. less than the price of its product
77. If a profit-maximizing monopolist faces a downward-sloping market demand curve,
A. average revenue is less than the price of the product.
B. average revenue is less than marginal revenue.
C. marginal revenue is less than the price of the product.
D. marginal revenue is greater than the price of the product.

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78. Which of the following statements is (are) true about monopolies?

A. Monopolies are constrained by market demand.
B. Monopolies benefit from barriers to entry.
C. Monopolies have the ability to set the prices of their products.
D. All of the above are correct.
79. Which of the following statements is correct?
A. A competitive firm is a price maker and a monopoly is a price taker.
B. A competitive firm is a price taker and a monopoly is a price maker.
C. Both competitive firms and monopolies are price takers.
D. Both competitive firms and monopolies are price makers.
80. Which of the following is not a barrier to entry in a monopolized market?
A. A single firm is very large.
B. The government gives a single firm the exclusive right to produce some good.
C. The costs of production make a single producer more efficient than a large number of
producers.
D. A key resource is owned by a single firm.
81. A firm whose average total cost continually declines at least to the quantity that could
supply the entire market is known as a
A. perfect competitor
B. government monopoly
C. natural monopoly
D. regulated monopoly
82. The demand curve faced by a monopolist is
A. vertical.
B. horizontal.
C. upward sloping.
D. downward sloping.
83. A monopolist is a ________, therefore, its demand curve is ________.
A. price taker, downward-sloping
B. price taker, horizontal
C. price setter, downward-sloping
D. price setter, horizontal
84. As output increases in a monopolist, the firm's total revenue
A. first increases and then decreases.
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B. first decreases and then increases.

C. increases continuously.
D. decreases continuously.
85. When monopolist reduces its price, total revenue will
A. Decrease
B. Increase
C. Remain unchanged
D. Not enough information to conclude
86. Marginal revenue of a monopolist is
A. greater than the price.
B. equal to the price.
C. smaller than the price.
D. often greater but sometimes smaller than the price.
87. A monopolist maximizes profit by producing the quantity at which
A. marginal revenue equals marginal cost.
B. marginal revenue equals price.
C. marginal cost equals price.
D. marginal cost equals demand.
88. Which of the following statements about price and marginal cost in competitive and
monopolized markets is true?
A. In competitive markets, price equals marginal cost; in monopolized markets, price
equals marginal cost.
B. In competitive markets, price equals marginal cost; in monopolized markets, price
exceeds marginal cost.
C. In competitive markets, price exceeds marginal cost; in monopolized markets, price
exceeds marginal cost.
D. In competitive markets, price exceeds marginal cost; in monopolized markets, price
equals marginal cost.
89. When a profit-maximizing monopolist is earning profits, those profits is identified by
A. P  Q
B. (MC – AVC)  Q
C. (P – ATC)  Q
D. (P – AVC)  Q
90. Monopoly firms exert their market power by charging a price that is
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A. above average revenue

B. below average total cost
C. above marginal cost
D. below marginal cost
91. A monopolist’s marginal cost will
A. be less than its average fixed cost.
B. be less than average revenue of firm.
C. exceed its marginal revenue.
D. equal its average total cost.
92. For a profit-maximizing monopolist,
A. P = MR = MC
B. P > MR > MC
C. P > MR = MC
D. P > MR < MC
93. The monopolist's supply curve
A. does not exist.
B. is the marginal cost curve above average variable cost.
C. is the marginal cost curve above average total cost.
D. is the upward-sloping portion of the average total cost curve.
94. Monopolists have
A. downward-sloping demand curves and they can sell as much output as they desire at
the market price.
B. downward-sloping demand curves and they can sell only a limited quantity of output at
each price.
C. horizontal demand curves and they can sell as much output as they desire at the market
price.
D. horizontal demand curves and they can sell only a limited quantity of output at each
price.
95. If marginal revenue exceeds marginal cost, a monopolist should
A. Decrease output.
B. Increase output.
C. Keep output the same because profits are maximized when marginal revenue exceeds
marginal cost.
D. Raise the price.
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96. A monopolist earning short-run economic profit determines that at its present level of
output, marginal revenue is $23 and marginal cost is $30. Which of the following should
the firm do to increase profit?
A. Lower price and lower output.
B. Raise price and lower output.
C. Lower price and raise output.
D. Raise price and raise output.
97. Compared to perfectly competitive market, monopoly market will usually generate
A. higher prices and higher output.
B. higher prices and lower output.
C. lower prices and lower output.
D. lower prices and higher output.
98. For a nondiscriminating monopolist, which of the following statements is true?
A. Unlike a firm in perfect competition, a monopolist produces where MR > MC.
B. The monopolist's marginal revenue curve is the same as its demand curve.
C. The monopolist will always produce in the inelastic range of its demand curve.
D. The monopolist does not have a supply curve.
99. Compared to the productive efficiency of a perfectly competitive firm, a monopolist
tends to be
A. Inefficient because it creates dead-weight loss for society
B. very efficient because it charges higher prices
C. more efficient because it produces greater output
D. equally efficient, as it also produces where MR = MC
100. Which of the following statements is true about a monopoly firm?
A. A monopoly firm is a price taker and has no supply curve.
B. A monopoly firm is a price maker and has no supply curve
C. A monopoly firm is a price maker and has a downward-sloping supply curve.
D. A monopoly firm is a price maker and has an upward-sloping supply curve.
101. Firm’s demand curve in monopoly market
A. Is downward sloping
B. Is horizontal at the market price
C. Double the slope of marginal revenue curve
D. Both A and C are correct
102. For a nondiscriminating monopolist, which of the following statements is true?
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

A. The monopolist never incur a loss.

B. The monopolist’s supply curve is a part of marginal cost curve.
C. The monopolist will always produce in the inelastic range of its demand curve.
D. Unlike a firm in perfect competition, a monopolist has AR > MR.
103. Dead-weight loss created by monopolist is the area
A. Above supply curve and below demand curve, restricted from optimal quantity of
monopoly market to optimal quantity of perfectly competitive market.
B. Above marginal cost curve and below demand curve, restricted from optimal quantity
of monopoly market to optimal quantity of perfectly competitive market.
C. Above demand curve and below marginal cost curve, restricted from optimal quantity
of monopoly market to optimal quantity of perfectly competitive market.
D. Above marginal cost curve and marginal revenue curve, restricted from optimal
quantity of monopoly market to optimal quantity of perfectly competitive market.
104. The higher value of Lerner index is, profit of monopolist will be
A. Higher
B. Lower
C. Unchanged
D. Cannot conclude
105. Market power shows firm’s ability in
A. Occupying market share
B. Controlling quantity sold
C. Controlling market price
D. Fighting competitors
106. After the patent runs out on a brand name drug who used to be a monopolist, generic
drugs enter the market. What happens next in the market?
A. Price increases, quantity increases.
B. Price decreases, quantity decreases.
C. Price increases, quantity decreases.
D. Price decreases, quantity increases.
107. Consider a profit-maximizing monopoly pricing under the following conditions: The
profit-maximizing price charged for goods produced is $16. The intersection of the
marginal revenue and marginal cost curves occurs where output is 10 units and marginal
cost is $8. The socially efficient level of production is 12 units. The demand curve and
marginal cost curves are linear. What is the deadweight loss?
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

A. $4
B. $8
C. $16
D. $64
108. Which of the following statements is (are) true of a monopoly?
(i)A monopoly has the ability to set the price of its product at whatever level it desires.
(ii) A monopoly’s total revenue will always increase when it increases the price of its product.
(iii) A monopoly can earn unlimited profits.
A. (i) only
B. (ii) only
C. (i) and (ii)
D. (ii) and (iii)
109. The Lerner index measures
A. an industryʹs potential market power.
B. a firmʹs potential profitability.
C. a firmʹs potential monopoly power.
D. the amount of monopoly power a firm chooses to exercises when maximizing profits.
110. With respect to monopolies, deadweight loss refers to the
A. socially unproductive amounts of money spent to obtain or acquire a monopoly.
B. net loss in consumer and producer surplus due to a monopolistʹs pricing strategy/policy.
C. lost consumer surplus from monopolistic pricing.
D. none of the above.
111. The profit-maximization problem for a monopolist differs from that of a competitive
firm in which of the following ways?
A. A competitive firm maximizes profit at the point where marginal revenue equals
marginal cost; a monopolist maximizes profit at the point where marginal revenue
exceeds marginal cost.
B. A competitive firm maximizes profit at the point where average revenue equals
marginal cost; a monopolist maximizes profit at the point where average revenue
exceeds marginal cost.
C. For a competitive firm, marginal revenue at the profit-maximizing level of output is
equal to marginal revenue at all other levels of output; for a monopolist, marginal
revenue at the profit-maximizing level of output is smaller than it is for larger levels of
output.
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

D. For a profit-maximizing competitive firm, thinking at the margin is much more

important than it is for a profit-maximizing monopolist.
112. The deadweight loss that arises in monopoly is a consequence of the fact that the
monopoly
A. price is higher than the price that would achieve efficiency
B. price exceeds marginal cost
C. output is lower than the level of output that would achieve efficiency
D. All of the above are correct
113. Use the diagram above to calculate the profit of the monopolist at its optimal output.

A. $60
B. $80
C. $96
D. $180
The graph below is used for questions number 114 and 115.
114. The profit-maximizing monopolist will choose the price and quantity at point
A. A
B. B
C. C
D. D
115. If the monopolist acts like a perfectly
competitive firm, they will choose the price and
quantity represented by point
A. A
B. B
C. C
D. D
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PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

116. Refer to graph 6.1, a profit-maximizing monopoly would have total cost equal to
A. P0 x Q1
B. P0 x Q2
C. P0 x Q3
D. (P1-P0) x Q2
Graph 6.1 Graph 6.2

Refer to the graph 6.2 above to answer questions 117 through 120.
117. To maximize total surplus, a social planner would choose which of the following
outcomes?
A. 100 units of output and a price of $10 per unit
B. 150 units of output and a price of $10 per unit
C. 150 units of output and a price of $15 per unit
D. 200 units of output and a price of $10 per unit
118. To maximize its profit, a monopolist would choose which of the following outcomes?
A. 100 units of output and a price of $10 per unit
B. 100 units of output and a price of $20 per unit
C. 150 units of output and a price of $15 per unit
D. 200 units of output and a price of $20 per unit
119. The monopolist’s maximum profit is
A. $800
B. $1,000
C. $1,250
D. cannot be determined from the diagram
120. The deadweight loss caused by a profit-maximizing monopoly amounts to
A. $150 C. $250
B. $200 D. $300
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