# The Ogburn School Microeconomics Imperfect Competition Questions

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Q1. The allocatively efficient quantity of product Z for the whole market is 2 million units. At that quantity, the demand for Z is at \$5 and the average total cost for its single supplier is \$7. The average total cost does not fall to \$5 until 3.5 million units. Based on this data, the market for product Z is

A. operating with decreasing returns to scale

B. a natural monopoly

C. a legal monopoly

D. monopolistically competitive

E. productively efficient

Q2.Use the graph to answer the question that follows.

What would be the area of this firm’s economic profits or economic losses?

A. P1, M, G, P3 in profits

B. P1, M, G, P3 in losses

C. P1, M, N, P2 in profits

D. P1, M, N, P2 in losses

E. P2, N, G, P3 in profits

Q3. If a monopolist begins to engage in perfect price discrimination where previously it charged a single price for all its customers, what would be true of its production figures?

A. Firm produces more; producer surplus increases; deadweight loss increases

B. Firm produces less; charges higher price; economic surplus decreases

C. Firm produces more; total economic surplus increases; consumer surplus disappears

D. Firm loses allocative efficiency; charges lower price; deadweight loss decreases

E. Firm reaches allocative efficiency; producer surplus decreases; consumer surplus increases

Q4. Patricia owns a cleaning business with Sarah. They both have other jobs and are trying to determine the number of hours to work at the cleaning business. The following payoff matrix shows their daily incomes depending on the number of hours they work at the cleaning business.

SARAH

FULL TIME PART TIME

PATRICIA FULL TIME \$60, \$60 \$50, \$80

PART TIME \$80, \$50 \$55, \$55

Which of the following accurately describes the payoff matrix above?

A. Neither Patricia nor Sarah have a dominant strategy.

B. Patricia has a dominant strategy to work full-time, and Sarah has no dominant strategy.

C. Sarah has a dominant strategy to work full-time, and Patricia has no dominant strategy.

D. Patricia and Sarah both have a dominant strategy to work full time.

E. Patricia and Sarah both have a dominant strategy to work part time.

Q5. Which of the following accurately describes a monopolistically competitive market?

A. Barriers to entry or exit secure firms’ long-term economic profits.

B. An individual firm’s demand curve is perfectly elastic.

C. Firms will earn normal profit in long-run equilibrium.

D. Production is inefficient in the short run and efficient in the long run.

E. Firms will produce more and charge less than firms in perfect competition.

Q6. Nori is a firm that sells products in an industry with a very high concentration of sellers. Nori’s production decisions must consider its competitors’ possible production decisions. In which market must Nori operate?

A. Perfect market

B. Monopoly market

C. Oligopoly market

D. Monopsony market

E. Monopolistic competition

Q7. A monopolistically competitive firm is earning positive economic profit. Which of the following must be true?

A. The firm is not in long-run equilibrium.

B. The firm is not producing where marginal revenue equals marginal cost.

C. The firm is receiving a per-unit subsidy.

D. The firm is operating with allocative efficiency.

E. The firm’s price is the level where marginal revenue equals marginal cost.

Q8. Use the graph to answer the question that follows.

In monopolistic competition, what area represents the deadweight loss?

A. The entire area between Q1 and Q2 up to ATC

B. The area between MC and D, from the intersection of MC and D to Q2

C. The area between MC and D, from Q1 to the intersection of MC and D

D. The area beneath the ATC to the intersection of MC and D

E. The area above MR below MC and over to Q2

Q9. Which of the following is a way that oligopolists can coordinate to increase individual profits that is illegal in most countries?

A. Charging a higher price than their marginal cost

B. Deliberately producing less than the allocatively efficient quantity

C. Conforming to the Prisoner’s Dilemma paradox

D. Fixing their prices and individual output levels

E. Producing near their maximum efficient scales

Q10. Deniques Limited is the only provider of sophisticated medical equipment in Farland. It perceives the demand curve it faces to be the same as the market demand curve. If its demand is represented by P = 100 – 2Q, which of the following is correct about Deniques Limited?

A. An increase in the price decreases economic losses.

B. A decrease in price decreases the quantity sold.

C. A decrease in price increases the quantity sold.

D. Higher levels of output bring in increasingly lower total revenue if demand is elastic.

E. Maintaining the current price decreases the quantity sold over time.

Q11. The minimum efficient scale for a good is beyond the point of output where marginal cost intersects the demand curve. This describes

A. diseconomies of scale

B. a legal monopoly

C. market power

E. a natural monopoly

Q12. In an oligopoly market, barriers to entry are ________ and the number of firms is relatively ________.

A. low; low

B. low; high

C. high; low

D. high; high

E. irrelevant; high

Q13. Megan and Martha own competing hair salons that are in the same neighborhood. They are both considering offering their clients discounts in order to increase business. The payoff matrix shows their yearly incomes in thousands of dollars if they offer and do not offer discounts to their customers.

MARTHA

DISCOUNT NO DISCOUNT

MEGAN DISCOUNT \$50, \$75 \$75, \$60

NO DISCOUNT \$35, \$90 \$70, \$85

If both Megan and Martha did not discount, what would each earn in yearly income?

A. Megan would earn \$50,000; Martha would earn \$75,000.

B. Megan would earn \$75,000; Martha would earn \$60,000.

C. Megan would earn \$35,000; Martha would earn \$90,000.

D. Megan would earn \$70,000; Martha would earn \$85,000.

E. Megan would earn \$35,000; Martha would earn \$85,000.

Q14. Company A and Company B are each telecommunications manufacturers. Both companies manufacture the same products, and they make their decisions based on the other’s actions. Both companies are considering opening retail outlets to increase their profits. The payoff matrix shows the profits of the companies in millions of dollars if they choose to open retail outlets.

COMPANY B

RETAIL OUTLETS NO RETAIL OUTLETS

COMPANY A RETAIL OUTLETS \$25, \$25 \$30, \$15

NO RETAIL OUTLETS \$35, \$35 \$34, \$20

The government imposes a new \$5 million tax to open retail outlets. What is the expected outcome of the new payoff matrix, given the tax?

A. The Nash equilibrium will be that both companies will not open retail stores.

B. The Nash equilibrium does not change as a result of the tax.

C. Company A’s dominant strategy remains the same, and it will open retail stores.

D. Company B’s dominant strategy remains the same, and it will not open retail stores.

E. Company A’s dominant strategy changes, and both companies will open retail stores.

Q15. The graph below represents the demand graph of a monopolist.

The firm uses price discrimination to increase its profits. What is the change in the price level? Assume the firm is acting to maximize profits before and after price discrimination.

A. From \$8 to \$14

B. From \$14 to \$8

C. From \$14 to \$12

D. From \$8 to demand level at every output quantity

E. From \$14 to demand level at every output quantity