AP Microeconomics Unit 4 Practice Test Multiple Choice Questions

AP Microeconomics Unit 4 Practice Test Multiple Choice Questions

1. For a non-price discriminating monopoly, the marginal revenue is

a. negative when the firm is maximizing profit

b. increasing at a constant rate

c. equal to the price

d. greater than the price

e. less than the price

REFERENCE:  http://www.youtube.com/watch?v=rtwJOu0KWDk

 2. Monopolies are able to make economic profit in the long run because

a. they can price discriminate

b. they have barriers to entry

c. they have inelastic demand curves

d. the demand curve is greater than the MR

e. the marginal cost curve is upward sloping

 3. Assume a monopolist is currently producing in the elastic range of their demand curve. To

maximize total revenue, the monopoly should

a. decrease their output

b. produce where the MR is negative

c. produce where the MR is zero

d. produce where the demand curve intersects the MC

e. produce at the minimum point of the ATC curve

REFERENCE:  http://www.youtube.com/watch?v=-xafrtzpW98

 4. If the monopoly above is maximizing profit, which of the following is true?

a. Total revenue is $960

b. Total cost is $600

c. They are producing in the inelastic range of the demand curve

d. Firms will enter in the long run

e. Profit is $200

 5. Use the points to identify the consumer surplus and dead-weight loss for the monopoly.

CS DWL

a. ABE BCJ

b. ABE BDJ

c. ABE CDJ

d. ACF BCJ

e. ADG BDJ

REFERENCE:  http://www.youtube.com/watch?v=WqUDIG5QP-w

6. A perfectly competitive industry is different from a monopoly in that

a. monopolies produce a greater quantity

b. monopolies maximize profit where MC exceeds MR

c. monopolies have U-shaped average total cost curves

d. perfect competition produces the allocatively efficient quantity

e. perfect competition results in a higher price

 7. If the government regulates a natural monopoly by setting a price ceiling where the MC equals the demand then

a. the monopoly will break even and make no economic profit

b. the monopoly will produce the socially optimal quantity

c. consumer surplus will decrease

d. the monopoly will make more profit

e. the monopoly will produce the productively efficient quantity

REFERENCE:  http://www.youtube.com/watch?v=zGrMO3fjZpY

 8. If a non-price discriminating monopoly could suddenly start price discriminating and charge each

consumer exactly what they are willing to pay, all of the following would occur EXCEPT:

a. The demand would equal the MR

b. The monopoly would earn more profit

c. The consumer surplus would be zero

d. There would be no dead-weight loss

e. The monopoly would charge all consumers higher prices

REFERENCE:  http://www.youtube.com/watch?v=OE9ER8oOj28

 9. Assume a profit maximizing monopoly was subject to a lump sum tax. Which of the following will

occur?

a. Price and quantity will stay the same

b. Price will increase and quantity will decrease

c. Price will increase but quantity will stay the same

d. The consumer surplus would get smaller

e. The monopoly would produce the socially optimal quantity

REFERENCE:  http://www.youtube.com/watch?v=0uRvmBOaSUk

 10. Which of the following best characterizes monopolistic competition?

a. Large number of firms with identical products

b. Large number of firms with high barriers to entry

c. Small number of firms and efficiency

d. Unique products and strategic pricing

e. Low barriers to entry and differentiated products

 11. Which of the following is true for monopolistically competitive firms in long run equilibrium?

a. Price equals ATC

b. Price equals MC

c. They are productively efficient

d. Firms will eventually leave the industry since they are making no economic profit

e. Firms are maximizing total revenue

REFERENCE:  http://www.youtube.com/watch?v=a2HWaXrPdMo

 12. Which of the following is correct regarding the four market structures?

a. Perfectly competitive firms and monopolies are price takers

b. Monopolies and monopolistically competitive firms have high barriers to entry

c. Game theory is used in all market structures to determine the price firms should set

d. Monopolies and monopolistically competitive firms are price makers

e. All market structures produce where the price equals the marginal cost

 13. Which of the following must be true if a market is dominated by four large firms that sell similar

products and use non-price competition?

a. The firms are interdependent

b. The firms are efficient

c. The market is an oligopoly that will be regulated by the government

d. The market is monopolistically competitive

e. The market is perfectly competitive

 14. Which of the following describes the situation where competitors collude and agree to set prices?

a. Collusive competition

b. Excess capacity

c. Cartel model

d. Kinked demand curve model

e. Game theory

 15. The game theory matrix shows the profit for two firms deciding whether to price high or price low.

Firm 1 is the blue numbers on the left. Which of the following is correct?

a. Firm 1's dominant strategy is to price low

b. Firm 1's dominant strategy is to price high

c. Firm 2's dominant strategy is to price high

d. Firm 2's dominant strategy is to price low

e. Both firms do not have a dominant strategy

REFERENCE: http://www.youtube.com/watch?v=pRjcjXIWTao