Module 7 Monopoly and Monopolistic Competition Multiple Choice

Test #4 Practice Questions Below are a list of questions covering the material for Test #4. These questions were generated by AI based on the provided readings. NOTE THESE QUESTIONS ARE FOR PRACTICE AND EXPERIENCE ONLY. THEY ARE NOT THE EXACT QUESTIONS THAT WILL APPEAR ON THE TEST. Answers to select questions appear after the question sets. Module #7 Part 2: Monopoly and Monopolistic Competition Multiple Choice – Select the best answers to the following questions. 1. Which of the following is NOT a common source of monopoly power? A. Government franchise B. Sole ownership of a necessary resource C. Absence of brand loyalty D. Economies of scale E. None of the above are sources of monopoly power. 2. What does marginal revenue represent for a monopolist? A. The cost of producing one more unit. B. The total revenue received at maximum output. C. The change in total revenue from selling one more unit. D. The revenue needed to break even. E. The additional fixed cost per unit. 3. A monopolist will continue producing additional units as long as: A. Price equals marginal cost. B. Marginal revenue is less than marginal cost. C. Total revenue is falling. D. Marginal revenue is greater than marginal cost. 4. What is total revenue for a monopolist who charges $6 per unit and sells 800 units? A. $3200 B. $4200 C. $4800 D. $5000 E. $5600 5. What decision rule does a monopolist use to determine the optimal quantity of production? A. Price = Average Total Cost B. Marginal Revenue = Marginal Cost C. Price = Marginal Cost D. Total Cost = Total Revenue E. Marginal Cost = Average Variable Cost 6. If the price falls below average variable cost at the optimal quantity, the monopolist should: A. Increase production. B. Raise prices. C. Enter the market. D. Shut down. E. Lower marginal cost. 7. Which of the following best describes a natural monopoly? A. A market with no government regulation. B. A market where one firm owns all patents. C. A market where per-unit costs are lowest with a single producer. D. A market dominated by advertising. E. A market with multiple competitive firms. 8. What is the long-run outcome for monopolistically competitive firms? A. Profits increase indefinitely. B. Prices rise significantly. C. Economic profits fall to zero. D. Marginal costs become negative. E. Demand becomes perfectly inelastic. 9. How is monopolistic competition different from monopoly? A. Monopoly has advertising costs. B. Monopolistic competition has a steeper demand curve. C. Monopolistic competition allows for free entry and exit. D. Monopoly earns zero profits in the long run. E. Monopolistic firms cannot influence prices; they take market prices as given. 10. What feature allows a monopolistically competitive firm to charge higher prices? A. Perfect substitutes. B. Government protection. C. Elastic market demand. D. Brand loyalty. E. Constant marginal cost. 11. In a monopoly, what must the firm do to sell additional units? A. Raise the price. B. Increase marginal cost. C. Decrease the price on all units. D. Wait for government approval. E. Reduce advertising. 12. Why do monopolistically competitive firms experience higher costs than monopolies? A. They have fewer fixed costs. B. They must comply with more regulations. C. They operate at economies of scale. D. They use outdated technology. E. They spend more on branding and advertising. 13. What is the profit for a monopolistically competitive firm that sells 150 units at $8.95 each with an ATC of $6.75? A. $150 B. $330 C. $450 D. $945 E. $1342.50 14. What happens when new firms enter a monopolistically competitive market? A. Marginal cost increases. B. The demand curve becomes more inelastic for existing firms in the market. C. Existing firms raise prices. D. Each existing firm’s demand curve becomes flatter. E. Branding becomes irrelevant. 15. Which market type results in the same long-run profit outcome as monopolistic competition? A. Monopoly B. Oligopoly C. Perfect competition D. Duopoly E. Cartel 16. Which of the following would most likely lead to a monopolist shutting down production in the short run? A. Price is less than average variable cost. B. Marginal revenue equals marginal cost. C. Price is greater than average total cost. D. Average total cost is less than marginal cost. E. The firm earns zero profit. 17. What effect does brand differentiation have in monopolistic competition? A. It eliminates advertising expenses. B. It creates perfectly elastic demand. C. It ensures long-term profits. D. It discourages market entry. E. It allows firms to gain some pricing power. 18. In a monopoly, what usually happens to the price per unit when the monopolist increases output? A. It decreases. B. It increases. C. It stays the same. D. It fluctuates randomly. E. It becomes irrelevant. 19. Which scenario best represents monopolistic competition? A. A single firm controls the entire supply of diamonds. B. Multiple brands of cereal compete in grocery stores. C. One government-run utility supplies electricity. D. A single software company owns all necessary code. E. A large number of steel companies produce identical steel rebar. 20. In the long run, why do profits tend to fall in monopolistically competitive markets? A. More firms enter the market, increasing competition. B. Government price controls are imposed. C. Consumers become less brand loyal. D. Marginal cost falls below average total cost. E. Costs increase with output.