1. 1. A market is competitive if
(i)
firms have the flexibility to price their own product.
(ii)
each buyer is small compared to the market.
(iii)
each seller is small compared to the market.
a.
b.
c.
d.
(i) and (ii) only
(i) and (iii) only
(ii) and (iii) only
(i), (ii), and (iii)
2. Free entry means that
a. the government pays any entry costs for individual firms.
b. no legal barriers prevent a firm from entering an industry.
c. a firm's marginal cost is zero.
d. a firm has no fixed costs in the short run.
3. Why does a firm in a competitive industry charge the market price?
a. If a firm charges less than the market price, it loses potential revenue.
b. If a firm charges more than the market price, it loses all its customers to other firms.
c. The firm can sell as many units of output as it want to at the market price.
d. All of the above are correct.
4. Which of the following firms is the closest to being a perfectly competitive firm?
a. a Ramly burger vendor in Malaysia
b. Microsoft Corporation
c. Ford Motor Company
d. the campus bookstore
5. Granting a pharmaceutical company a patent for a new medicine will lead to
(i)
a product that is priced higher than it would be without the exclusive rights.
(ii)
incentives for pharmaceutical companies to invest in research and development.
(iii)
higher quantities of output than without the patent.
a.
b.
c.
d.
(i) and (ii) only
(ii) and (iii) only
(i) and (iii) only
(i), (ii), and (iii)
6. The defining characteristic of a natural monopoly is
a. constant marginal cost over the relevant range of output.
b. economies of scale over the relevant range of output.
c. constant returns to scale over the relevant range of output.
d. diseconomies of scale over the relevant range of output.
7. Which of the following would be most likely to have monopoly power?
a. a long-distance telephone service provider
b. a local cable TV provider
c. a large department store
d. a gas station

2. 8. When a firm operates under conditions of monopoly, its price is
a. not constrained.
b. constrained by marginal cost.
c. constrained by demand.
d. constrained only by its social agenda.
9. Which of the following is an example of an externality?
a. cigarette smoke that permeates an entire restaurant
b. a flu shot that prevents a student from transmitting the virus to her roommate
c. a beautiful flower garden outside of the local post office
d. All of the above are correct.
10. Markets are often inefficient when negative externalities are present because
a. private costs exceed social costs at the private market solution.
b. externalities cannot be corrected without government regulation.
c. social costs exceed private costs at the private market solution.
d. production externalities lead to consumption externalities.
11. Some goods can be either common resources or public goods depending on
a. whether the good is rival in consumption.
b. whether the good is excludable.
c. the marginal cost of the good.
d. None of the above is correct.

3. Price
P
MC
A
B
C
ATC
F
G
H
D
O
J K
L
Quantity
MR
What price will the monopolist charge?
How much output will the monopolist produce?
A profit-maximizing monopoly's total revenue is equal to
A profit-maximizing monopoly's total cost is equal to
What area measures the monopolist’s profit?
Describe how government is involved in creating a monopoly. Why might the government create one?
Give an example.