Leader: Maddie
Course: Econ 101
Instructor: Kreider
Date: 11-12-15
If a local California avocado stand operates in a perfectly competitive market, the owner
will be a:
a. Price-maker
b. Price-taker
c. Price-discriminator
d. Price-maximizer
Perfect competition is characterized by:
a. Rivalry in advertising
b. Fierce quality competition
c. The inability of any one firm to influence price
d. Widely recognized brands
One characteristic of a perfectly competitive market is that there are __________ sellers
of the good or service.
a. One or two
b. A few
c. Usually around 10
d. Many
A perfectly competitive firm maximizes profit by producing the quantity at which:
a. TR = TC
b. MR = MC
c. Q * (P-ATC)=0
d. P > AVC
If a perfectly competitive firm sells 10 units of output at a price of $30 per unit, its
marginal revenue is:
a. $10
b. $30
c. More than $10
d. Less than $30
A perfectly competitive firm will continue producing in the short run as long as it can
cover its:
a. Total cost
b. Fixed cost
c. Variable cost
d. Average total cost
Assume that in the short run a perfectly competitive firm does not produce output and has
economic losses. This would occur if:
a. P = ATC
b. P < AVC
c. AVC < P<ATV and FC > 0
d. AVC > P > ATC and FC = 0
Exam 3 Review
Public Goods
Supplemental Instruction
Iowa State University
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1060 Hixson-Lied Student Success Center  515-294-6624  sistaff@iastate.edu  http://www.si.iastate.edu
Use the following to answer questions 8-9:
8. (Figure: Short-run Costs) At the given price, the most profitable level of output occurs
are quantity:
a. N
b. P
c. S
d. T
9. (Figure: Short-run Costs) This firms short-run supply curve begins at quantity:
a. Q
b. R
c. S
d. T
10. A competitive firm will supply at an output:
a. That maximizes sales
b. Where marginal cost just exceeds market price
c. At the last unit where Price > MC
d. Where total costs > price
11. Which is NOT a characteristic of a perfectly competitive market?
a. Standardized product
b. Free entry
c. Brand-name advertising
d. Many buyers and sellers
12. Which of these does belong with perfect competition?
a. Downward sloping demand curve
b. Having a patent
c. Zero profits in the long run
d. The restaurant industry
Use the following to answer questions 13-15:
The market for tomatoes is perfectly competitive, and an individual tomato farmer faces the
cost curves shown in the figure. The market price of a bushel of tomatoes is $10.
13. (Figure 3) At the farmer’s profit-maximizing output, total revenue is:
a. $90
b. $56
c. $30
d. $48
14. (Figure 3) At the farmer’s profit-maximizing output, total cost is:
a. $42
b. $48
c. $56
d. $72
15. (Figure 3) At the farmer’s profit-maximizing output, profit is:
a. -$8
b. $0
c. $18
d. -$18
16. The marginal revenue curve is equal to (list all that apply)
a. Price
b. Quantity
c. Demand curve
d. Marginal Cost
e. Average Revenue
f. All of the above
g. A and c
h. A, c and e
17. What doesn’t remain constant for different individuals of perfectly competitive markets?
(circle to all that apply)
a. Marginal costs
b. Quantity
c. Price
d. Demand
e. Product
f. None of the above
18. What are the three steps for finding the maximum profit? (circle all that apply and then
put them in order) Order is DAE
a. Finding the price
b. Finding the average cost
c. Finding when to raise prices
d. Finding how much to produce
e. Finding (P-ATC) x Q and regraphing the information
19. What does (P-ATC) x Q find?
a. The total profit for a perfectly competitive firm
b. How many we need to sell to make a maximized profit
c. The difference between the price and the costs
d. The total profit we make when profits are maximized
50 million
20. What does the 50 million mean? (List all that apply)
a. Quantity produced in individual store
b. Quantity of all individual stores in the market combined
c. Quantity produced in the market
d. Quantity produced in one area of the economy
21. What is predatory pricing?
a. Charging too little and losing money
b. Price gouging
c. Charge too little in efforts to run small businesses out of town by creating barriers
to entry
d. Jacking up the prices of products to gain a higher profit than other suppliers in the
market
22. What is the short-run supply curve for a perfectly competitive market?
a. The average variable cost curve
b. The segment of the marginal cost curve that lies above average variable costs
curve
c. The marginal revenue curve
d. The segment of the marginal cost curve where price is below the average variable
costs curve
23. Farmer Steve will sell 60,000 ears of corn when the market price of corn is at $2. If the
market price rises to $3, what is a likely number of ears of corn that Steve will likely
produce?
a. 30,000
b. 60,000
c. 90,000
d. 10,000
e. Firm would likely shut down
24. Which curve is most similar to the supply curve in a short-run graph for a perfectly
competitive market?
a. The marginal costs curve
b. The demand curve
c. The average variable costs curve
d. The average costs curve
e. The marginal revenue curve
25. What is a pure monopoly?
a. A market only has one seller of a good or service with no close substitutes
b. It is the same as a natural monopoly
c. A monopoly that is a result of economies of scale
d. A monopoly where firms are price-makers
26. Which is not a characteristic of economies of scale
a. A firm grows large and operates long enough to produces outputs at a lower price
in the long run
b. A price-taking firm lowers prices below market price to drive competitors out of
the market
c. The ATC curve of a monopoly is downward sloping
d. Develop natural monopolies
27. What is a natural monopoly?
a. A pure monopoly
b. A monopoly that is created by economies of scale
c. A monopoly that takes prices from the market equilibrium
d. a and b
e. b and c
f. all of the above
28. Which is not a barrier to enter a monopoly?
a. If there are economies of scale
b. A firm controls some scarce input
c. Government creates barriers to entry
d. The market price rises
e. There are superior entrepreneurs in the market
29. In order to increase output in a monopolist economy, ___________ must decrease.
a. Supply
b. Marginal revenue
c. Price
d. Marginal cost
30. If Marginal Cost < Marginal Revenue, then a monopolist firm will…
a. Increase output
b. Decrease output
c. Output will remain the same
d. Impossible to know
31. Profits mainly depend on…
a. The demand curve
b. The marginal revenue curve
c. The price
d. The marginal cost curve
32. What is not an inefficiency a monopoly creates?
a. Less incentive to innovate and cut costs
b. The monopolist produces a lower quantity than could be produced by perfectly
competitive markets
c. Monopoly owners shelter 17.2% of America’s wealth
d. The monopolist fail to produce an output that society would have valued by more
than it would have cost to produce
33. Monopolies are inefficient from society’s perspective because price is always greater
than…
a. Marginal revenue
b. Demand
c. Quantity supplied
d. Marginal cost
34. Which of the following is not imperfect competition…
a. Oligopolies
b. Monopolistic competition
c. Monopolies
d. All of the above are imperfect competition
35. Which is an example of an oligopoly?
a. A farmer who sells eggplant
b. Restaurants
c. The oil industry
d. The drug cartel
36. Which is not true of monopolistic competition?
a. There are differentiated products
b. Cartels may arise in monopolistic competition
c. There is a downward sloping demand curve
d. Firms are price makers, seeing as there is only one firm that sells to the industry
with no close substitutes
37. Differentiated products…
a. Are all sold at the same price
b. Imply a demand curve that is horizontal
c. Provides an incentive for advertising
d. Lessens firms market power
38. Monopolistic firms produce where…
a. ATC<P
b. MR=MC
c. ATC>P
d. MR meets the Demand Curve
39. What is collusion?
a. A firm setting prices lower than the market price in an attempt to drive other
competitors out of the market
b. A firm raising prices far above the market price and exploiting consumers
c. A group of firms coming together and setting a quantity to output in attempts to
raise price and split the profits
d. When a firm must follow the market price
40. True or false, a cartel happens in a monopoly?
a. True
b. False
41. Which is not true of a cartel?
a. “Cheaters” and “free riders” enjoy less economic profit than members of the
cartel
b. Violates U.S. antitrust laws
c. They find profits where MR=MC, using a monopoly’s marginal revenue curve
d. Quantity of the market is lower than if the cartel would operate as a perfectly
competitive market
42. What is true of oligopolies?
a. There are many buyers and sellers
b. There are few, large sellers
c. There is only one seller
d. They use MR=MC to find profit
43. What is the Nash Equilibria?
a. A combination of actions such that each player is happy
b. Where quantity supplied meets quantity demanded in an oligopoly
c. A combination where each player chooses to take their own dominant strategy,
which is different from the other
d. A combination of actions such that no player regrets his/her action once it is
revealed what everyone has chosen to do
44. What is the dominant strategy for Clyde and Bonnie?
a. For Clyde it is to confess, for Bonnie it is to remain silent
b. For Clyde it is to confess, for Bonnie it is to confess
c. For Clyde it is to remain silent, for Bonnie it is to remain silent
d. For Clyde it is to remain silent, for Bonnie it is to confess
45. What is the problem with collusion in this case and in cartels?
a. It is hard to decide together what to do
b. Meeting up for coffee is difficult because both Clyde and Bonnie have class in the
morning
c. Both Bonnie and Clyde would like to be set free
d. It is hard for one to trust the other, so there is a fear that the other may cheat
46. If Bonnie and Clyde were to collude in this case…
a. Bonnie and Clyde would both spend 20 years in prison
b. Bonnie would spend life in prison and Clyde would be set free
c. Clyde would spend life in prison and Bonnie would be set free
d. Both would pay a $10 fine
47. What is Nash Equilibrium?
a. For both to remain silent
b. For Bonnie to remain silent and for Clyde to confess
c. For both to confess
d. For Clyde to remain silent and for Bonnie to confess
48. How does the prisoner’s dilemma apply to oligopolies?
a. Firms must set their own prices competitively with one another without
knowledge of what the other will do
b. Firms are afraid to set up cartels with one another in fear of “cheaters”
c. Firms often engage in collusion
d. Firms must act independently even though it is easy to predict what the other
firms in the market will do
49. What market does this graph represent?
a. Perfect competition
b. Monopoly
c. Monopolistic competition
d. Oligopoly
50. What is the shaded area represent?
a. The lost benefit to society
b. Deadweight Loss
c. Loss of consumer surplus and loss of producer surplus
d. a and c
e. All of the above
51. How will you do on the test?
a. A’s all the way!
b. Probably not going to go
c. A+++++!!!
d. 
e. All of the above but B