AP Microeconomics Unit 4 Practice Test & Exam | 17 Questions

Questions 1-3 refer to the graph below, which shows the demand, marginal revenue, and cost curves for a monopolist.

1. To maximize profit, this monopolist will produce at which quantity and charge which price?

(A)Quantity Q2, Price P2(B)Quantity Q2, Price P4(C)Quantity Q3, Price P3(D)Quantity Q4, Price P1

2. At the profit-maximizing level of output, the monopolist's total profit is represented by the area of which rectangle?

(A)P4 * Q2(B)(P4 - P2) * Q2(C)(P4 - P3) * Q3(D)(P2 - P1) * Q2

3. The deadweight loss created by this unregulated monopolist is represented by the area of the triangle defined by which three points?

(A)The intersection of MC and MR, the point on the D curve at Q2, and the intersection of MC and D.(B)The origin, the point (Q3, 0), and the intersection of MC and D.(C)The point (0, P4), the point on the D curve at Q2, and the point (Q2, 0).(D)The point (0, P2), the point (0, P4), and the point on the D curve at Q2.

4. Which of the following is a defining characteristic of a natural monopoly?

(A)The firm owns an exclusive patent on its production process.(B)The firm's average total cost is decreasing over the entire relevant range of market demand.(C)The firm's marginal cost curve is downward sloping.(D)The firm can practice perfect price discrimination.

5. If a government regulator forces a natural monopoly to set its price equal to its marginal cost, which of the following will be true?

(A)The firm will earn positive economic profits, and the outcome will be allocatively efficient.(B)The firm will earn zero economic profit, and the outcome will be allocatively inefficient.(C)The firm will incur economic losses and may exit the market without a subsidy.(D)The firm will produce less than the profit-maximizing quantity of output.

6. Assume a monopolist switches from charging a single price to practicing perfect price discrimination. What will be the effect on consumer surplus and deadweight loss?

(A)Consumer surplus will increase, and deadweight loss will be eliminated.(B)Consumer surplus will decrease, and deadweight loss will increase.(C)Consumer surplus will be eliminated, and deadweight loss will be eliminated.(D)Consumer surplus will be eliminated, and deadweight loss will increase.

7. A movie theater charges a lower price for tickets to senior citizens than it does to other patrons. Which of the following is a necessary condition for the theater to be able to price discriminate in this way?

(A)The theater must be a natural monopoly.(B)Senior citizens must have a more inelastic demand for movies than other patrons.(C)The theater must be able to prevent the resale of tickets from senior citizens to other patrons.(D)The marginal cost of providing the movie to a senior citizen must be lower than the marginal cost for other patrons.

Questions 8-9 refer to the graph below, which shows the cost and revenue curves for a monopolistically competitive firm in the short run.

8. Based on the graph, which of the following statements is correct?

(A)The firm is in long-run equilibrium and earning zero economic profit.(B)The firm is operating in the short run and earning positive economic profits.(C)The firm is operating in the short run and incurring economic losses.(D)The firm should shut down immediately to minimize its losses.

9. Given the situation shown in the graph, what will happen in the long run in this monopolistically competitive market?

(A)New firms will enter the market, causing this firm's demand curve to shift to the right.(B)New firms will enter the market, causing this firm's demand curve to shift to the left.(C)Firms will exit the market, causing this firm's demand curve to shift to the right.(D)The market will remain unchanged because there are significant barriers to entry.

10. In long-run equilibrium, a monopolistically competitive firm is said to have excess capacity. This means that

(A)the firm produces a level of output that is greater than the productively efficient level.(B)the firm could lower its average total cost by increasing its level of output.(C)the firm has maximized its total revenue rather than its total profit.(D)the firm's price is equal to its marginal cost.

Questions 11-13 refer to the payoff matrix below, which shows the daily profits (in thousands of dollars) for two firms, Firm A and Firm B, that are the only sellers of bottled water in a small town. The firms can choose to set either a high price or a low price.

11. What is Firm A's dominant strategy?

(A)Charge a high price.(B)Charge a low price.(C)Charge a high price only if Firm B charges a high price.(D)Firm A does not have a dominant strategy.

12. Which of the following represents the Nash equilibrium in this game?

(A)Both firms charge a high price.(B)Both firms charge a low price.(C)Firm A charges a low price, and Firm B charges a high price.(D)This game has no Nash equilibrium.

13. If the two firms were able to successfully collude, what outcome would they choose?

(A)Firm A charges a low price, and Firm B charges a high price.(B)Both firms charge a low price.(C)Both firms charge a high price.(D)Collusion is not beneficial in this scenario.

14. Which of the following is a key difference between the long-run equilibrium for a firm in perfect competition and a firm in monopolistic competition?

(A)A perfectly competitive firm earns zero economic profit, while a monopolistically competitive firm earns positive economic profit.(B)A perfectly competitive firm produces at the minimum of its average total cost, while a monopolistically competitive firm does not.(C)A perfectly competitive firm faces a downward-sloping demand curve, while a monopolistically competitive firm faces a horizontal demand curve.(D)A perfectly competitive firm has market power, while a monopolistically competitive firm does not.

15. A single-price monopolist will never choose to operate on the inelastic portion of its demand curve because

(A)doing so would mean producing where marginal cost is negative.(B)the firm could increase total revenue and decrease total cost by raising its price.(C)consumer surplus is maximized on the elastic portion of the demand curve.(D)barriers to entry are only effective on the elastic portion of the demand curve.

AP Microeconomics Unit 4: Imperfect Competition Practice Exam

Exam Details

A. Multiple-Choice Questions (15 Questions)

B. Short Answer Questions (2 Questions)

AP Microeconomics Unit 4: Imperfect Competition Practice Exam

Exam Details

A. Multiple-Choice Questions (15 Questions)

B. Short Answer Questions (2 Questions)