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Chapter 08 - Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets AACSB: Analytical Thinking Difficulty: 03 Hard Chapter 08 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets 4. Which of the following is true under monopoly? A. Profits are alwa...

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Chapter 08 - Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets AACSB: Analytical Thinking Difficulty: 03 Hard

Chapter 08 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

4. Which of the following is true under monopoly? A. Profits are always positive. B. P > MC. C. P = MR. D. All of the choices are true for monopoly.

Multiple Choice Questions 1. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 − 15Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. How much output should be produced in plant 1 in order to maximize profits? A. 1 B. 2 C. 3 D. 4

Answer: B Learning Objective: 08-01 Topic: Monopoly Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

5. You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q2. The profit-maximizing output for your firm is: A. 4/5. B. 10. C. 5. D. 45.

Answer: A Learning Objective: 08-08 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard

Answer: C Learning Objective: 08-03 Topic: Perfect Competition Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

2. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 − 15Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. What price should be charged to maximize profits? A. $20.5 B. $40.5 C. $60.5 D. $80.5

6. You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q2. Your firm's maximum profits are: A. 125. B. 250. C. 100. D. 85.

Answer: B Learning Objective: 08-08 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard

Answer: D Learning Objective: 08-03 Topic: Perfect Competition Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

3. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 − 15Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. What price should be charged in order to maximize revenues? A. $39 B. $47 C. $52 D. $56

7. You are the manager of a monopoly that faces a demand curve described by P = 230 − 20Q. Your costs are C = 5 + 30Q. The profit-maximizing output for your firm is: A. 4. B. 5. C. 6. D. 7.

Answer: A Learning Objective: 08-08 Topic: Monopoly Blooms: Apply

Answer: B Learning Objective: 08-03 8-1

© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 08 - Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

11. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 120 − 6Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. What price should be charged to maximize profits? A. 60 B. 66 C. 70 D. 76

Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

8. You are the manager of a monopoly that faces a demand curve described by P = 230 − 20Q. Your costs are C = 5 + 30Q. The profit-maximizing price is: A. 150. B. 90. C. 130. D. 110.

Answer: B Learning Objective: 08-08 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard

Answer: C Learning Objective: 08-03 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

12. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 120 − 6Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. What price should be charged in order to maximize revenues? A. 6 B. 2 C. 24 D. 60

9. You are the manager of a monopoly that faces a demand curve described by P = 230 − 20Q. Your costs are C = 5 + 30Q. Your firm's maximum profits are: A. 495. B. 475. C. 480. D. 415.

Answer: D Learning Objective: 08-08 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard

Answer: A Learning Objective: 08-03 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

13. In a competitive industry with identical firms, long-run equilibrium is characterized by: A. P = AC. B. P = MC. C. MR = MC. D. All of the statements associated with this question are correct.

10. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 120 − 6Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. How much output should be produced in plant 1 in order to maximize profits? A. 3 B. 6 C. 9 D. 12

Answer: D Learning Objective: 08-05 Topic: Perfect Competition Blooms: Remember

Answer: B Learning Objective: 08-08 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard

8-2 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 08 - Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets AACSB: Knowledge Application Difficulty: 01 Easy

AACSB: Analytical Thinking Difficulty: 02 Medium

14. Which of the following is true? A. A monopolist produces on the inelastic portion of its demand. B. A monopolist always earns an economic profit. C. The more inelastic the demand, the closer marginal revenue is to price. D. In the short run, a monopoly will shut down if P < AVC.

17. You are the manager of a monopoly that faces a demand curve described by P = 85 − 5Q. Your costs are C = 20 + 5Q. The profit-maximizing output for your firm is: A. 6. B. 5. C. 7. D. 8.

Answer: D Learning Objective: 08-06 Topic: Monopoly Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 Hard

Answer: D Learning Objective: 08-03 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

18. You are the manager of a monopoly that faces a demand curve described by P = 85 − 5Q. Your costs are C = 20 + 5Q. The profit-maximizing price is: A. 45. B. 55. C. 60. D. 50.

15. You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. The profitmaximizing output for your firm is: A. 4. B. 5. C. 10. D. 15.

Answer: A Learning Objective: 08-03 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

Answer: B Learning Objective: 08-03 Topic: Perfect Competition Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

19. You are the manager of a monopoly that faces a demand curve described by P = 85 − 5Q. Your costs are C = 20 + 5Q. The revenue-maximizing output is: A. .85. B. 9. C. 10. D. None of the preceding answers is correct.

16. You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. Your firm's maximum profits are: A. 36. B. 60. C. 40. D. 80.

Answer: D Learning Objective: 08-03 Topic: Monopoly Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 Hard

Answer: C Learning Objective: 08-03 Topic: Perfect Competition Blooms: Apply

20. You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. The profitmaximizing output for your firm is: A. 10. B. 20. C. 30. D. 40. Answer: A

8-3 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 08 - Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

24. You are the manager of a monopoly that faces a demand curve described by P = 63 − 5Q. Your costs are C = 10 + 3Q. Your firm's maximum profits are: A. 0. B. 66. C. 120. D. 170.

Learning Objective: 08-03 Topic: Perfect Competition Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

21. You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. Your firm's maximum profits are: A. 250. B. 400. C. 450. D. 500.

Answer: D

Learning Objective: 08-03 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

Answer: A

25. You are the manager of a monopoly that faces a demand curve described by P = 63 − 5Q. Your costs are C = 10 + 3Q. The revenue-maximizing output is: A. 10/63. B. 5. C. 6.3. D. None of the preceding answers is correct.

Learning Objective: 08-03 Topic: Perfect Competition Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

22. You are the manager of a monopoly that faces a demand curve described by P = 63 − 5Q. Your costs are C = 10 + 3Q. The profit-maximizing output for your firm is: A. 3. B. 4. C. 5. D. 6.

Answer: C

Learning Objective: 08-03 Topic: Monopoly Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 Hard

26. Which of the following is true under monopoly? A. Profits are always positive. B. P > minimum of ATC. C. P = MR. D. None of the preceding answers is correct.

Answer: D Learning Objective: 08-03 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

Answer: D Learning Objective: 08-01 Topic: Monopoly Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

23. You are the manager of a monopoly that faces a demand curve described by P = 63 − 5Q. Your costs are C = 10 + 3Q. The profit-maximizing price is: A. 20. B. 27. C. 33. D. 55. Answer: C

Learning Objective: 08-03 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

8-4 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 08 - Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

27. In the long run, monopolistically competitive firms: A. charge prices equal to marginal cost. B. have excess capacity. C. produce at the minimum of average total cost. D. have excess capacity and produce at the minimum of average total cost.

31. Which of the following industries is best characterized as monopolistically competitive? A. Toothpaste B. Crude oil C. Agriculture D. Local telephone service

Answer: B

Learning Objective: 08-01 Topic: Monopolistic Competition Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

Answer: A

Learning Objective: 08-05 Topic: Monopolistic Competition Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

32. Which of the following is an example of monopoly? A. Shoe industry in the United States B. Local utility industry in a small town C. Newspaper industry in New York City D. Bread industry in New York City

28. If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits, the firm will: A. reduce output and increase price. B. increase output and decrease price. C. increase both output and price. D. reduce both output and price.

Answer: B Learning Objective: 08-01 Topic: Monopoly Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

Answer: A

Learning Objective: 08-03 Topic: Monopolistic Competition Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

33. Differentiated goods are a feature of a: A. perfectly competitive market. B. monopolistically competitive market. C. monopolistic market. D. monopolistically competitive market and monopolistic market.

29. Which of the following market structures would you expect to yield the greatest product variety? A. Monopoly B. Monopolistic competition C. Bertrand oligopoly D. Perfect competition

Answer: B Learning Objective: 08-01 Topic: Monopolistic Competition Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

Answer: B

Learning Objective: 08-01 Topic: Monopolistic Competition Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

34. Firms have market power in: A. perfectly competitive markets. B. monopolistically competitive markets. C. monopolistic markets. D. monopolistically competitive markets and monopolistic markets.

30. The primary difference between monopolistic competition and perfect competition is: A. the ease of entry and exit into the industry. B. the number of firms in the market. C. Both A and B are correct. D. None of the preceding answers is correct.

Answer: D Learning Objective: 08-01 Topic: Monopoly Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

Answer: D Learning Objective: 08-01 Topic: Monopolistic Competition Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

8-5 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 08 - Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

35. There is no market supply curve in: A. a perfectly competitive market. B. a monopolistically competitive market. C. a monopolistic market. D. monopolistically competitive and monopolistic markets.

38. Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets? A. Firms produce homogeneous goods. B. There is free entry. C. Long-run profits are zero. D. There is free entry and long-run profits are zero.

Answer: D Learning Objective: 08-07 Topic: Monopoly Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

Answer: D

Learning Objective: 08-01 Topic: Monopolistic Competition Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

36. Suppose that initially the price is $50 in a perfectly competitive market. Firms are making zero economic profits. Then the market demand shrinks permanently, some firms leave the industry, and the industry returns to a long-run equilibrium. What will be the new equilibrium price, assuming cost conditions in the industry remain constant? A. $50 B. $45 C. Lower than $50, but exact value cannot be known without more information. D. Larger than $45, but exact value cannot be known without more information.

39. The source(s) of monopoly power for a monopoly may be: A. economies of scale. B. economies of scope. C. patents. D. All of the statements associated with this question are correct. Answer: D

Learning Objective: 08-02 Topic: Monopoly Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

Answer: A

Learning Objective: 08-05 Topic: Perfect Competition Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 Hard

40. Economies of scale exist whenever: A. average total costs decline as output increases. B. average total costs increase as output increases. C. average total costs are stationary as output increases. D. average total costs increase as output increases and average total costs are stationary as output increases.

37. Which of the following statements concerning monopoly is NOT true? A. A market may be monopolistic because there are some legal barriers. B. A monopoly has market power. C. A monopoly is always undesirable. D. There is some deadweight loss in a monopolistic market.

Answer: A Learning Objective: 08-02 Topic: Monopoly Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

Answer: C

Learning Objective: 08-05 Topic: Perfect Competition Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

8-6 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 08 - Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

A. $12.5 per unit B. $6.25 per unit C. $31.25 per unit D. $18.75 per unit

41. The number of efficient plants compatible with domestic consumption of the refrigerator industry in Sweden is 0.7. Which of the following implications is (are) correct? A. In the absence of imports, the refrigerator industry in Sweden is monopolistic. B. The refrigerator industry in Sweden is perfectly competitive. C. The refrigerator industry in Sweden is monopolistically competitive. D. None of the preceding answers is correct.

Answer: C

Learning Objective: 08-08 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard

45. Which of the following is a correct representation of the profit maximization condition for a monopoly? A. P = MR B. MC = MR C. P = ATC + MR D. MR = MC + ATC

Answer: A Learning Objective: 08-01 Topic: Monopoly Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

Answer: B

42. A monopoly has two production plants with cost functions C1 = 50 + 0.1Q12 and C2 = 30 + 0.05Q22. The demand it faces is Q = 500 − 10P. What is the condition for profit maximization? A. MC1(Q1) = MC2(Q2) = P(Q1 + Q2). B. MC1(Q1) = MC2(Q2) = MR(Q1 + Q2). C. MC1(Q1 + Q2) = MC2(Q1 + Q2) = P (Q1 + Q2). D. MC1(Q1 + Q2) = MC2(Q1 + Q2) = MR (Q1 + Q2).

Learning Objective: 08-01 Topic: Monopoly Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

46. Let the demand function for a product be Q = 100 − 2P. The inverse demand function of this demand function is: A. Q = 100 + 2P. B. P = 50 − 0.5Q. C. P = 50 + 0.5Q. D. None of the preceding answers is correct.

Answer: B Learning Objective: 08-08 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

Answer: B Learning Objective: 08-04 Topic: Monopoly Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium

43. A monopoly has two production plants with cost functions C1 = 50 + 0.1Q12 and C2 = 30 + 0.05Q22. The demand it faces is Q = 500 − 10P. What is the profit-maximizing level of output? A. Q1 = 62.5; Q2 = 125. B. Q1 = 125; Q2 = 62.5. C. Q1 = Q2 = 125. D. Q1 = Q2 = 62.5.

47. A linear demand function exhibits: A. constant demand elasticity. B. more elastic demand as output increases. C. less elastic demand as output in...