ECON3020 EXAM II

NAME (PRINT) _______________________________

TRUE/FALSE QUESTIONS (1 POINT EACH)
1. Average total cost is the sum of fixed cost plus variable cost.
2. Other things equal, the larger is the contribution margin the smaller is the breakeven quantity.
3. When the products are standardized, we can be sure that the industry will behave competitively.
4. When free entry exists, the perfect competitive model suggests that economic profit will always be equal to zero.
5. The firm’s demand curve in monopolistic competition is perfectly elastic.
6. A profit-maximizing monopolist produces output where marginal cost is equal to the price.
7. Marginal revenue is always twice as steep as the demand curve.
8. Collusion is harder to achieve if the costs of the firms in the group are similar.

MULTIPLE CHOICE QUESTIONS (2 POINTS EACH)
9. For a typical competitive firm, the price in the long run equilibrium will tend to:
A. be greater than average cost
B. be equal to average cost
C. be less than average cost
D. intermediate

10. Which of the following is NOT a problem with monopoly?
A. The price does not signal true cost.
B. Monopolists typically force customers to purchase more than they want to.
C. A monopolist may not produce at the lowest point of its average cost curve.
D. The quantity produced is typically less than in pure competition.

11. Which of the following does NOT describe oligopolies?
A. The rivals react to business decisions made by other firms.
B. The firms are price-takers.
C. There are just a few firms.
D. The products may be either homogeneous or heterogeneous.

12. In a two-firm oligopoly that has decided to jointly maximize profits, we would expect that the output:
A. Would be split fifty-fifty.
B. Would be greater than the monopoly quantity.
C. Would be set where the sum of their MC’s equals to the