Choose the correct answer for each question.

1. A misallocation of resources is mostly likely to occur in monopoly ig

   1.   ?    other firms enter the industry
   2.   ?    higher prices are charged than under competitive conditions
   3.   ?    market output increases
   4.   ?    there are economies of scale

2. Assume that a competitive industry is in equilibrium. If market demand increases (other things being equal) which of the following will occur?

   1.   ?    market price will increase
   2.   ?    firms will produce more output
   3.   ?    firms will increase their profits
   4.   ?    all of the above are correct

3. When a firm expands its scale of operations, and such expansion leads to lower cost per unit, the firm faces

   1.   ?    economies of scale
   2.   ?    diseconomies of scale
   3.   ?    constant returns to scale
   4.   ?    diminishing returns

4. Monopolies

   1.   ?    will set a higher price and a higher level of output than would be set under competition
   2.   ?    will set a higher price and a lower level of output than would be set under perfect competition
   3.   ?    will set a lower price and a higher level of output than would be set under perfect competition
   4.   ?    will set a lower price and a lower level of output than would be set under perfect competition

5. Large economies of scale, such as those involved in the production of gas and electricity, result in a(n)
   
   

   1.   ?    upward sloping long run average cost curve
   2.   ?    flat long run average cost curve
   3.   ?    downward sloping average cost curve
   4.   ?    none of the above

6. Why are monopolistic markets thought to lead to an inefficient allocation of resources?

   1.   ?    because they will always have higher costs than competitive firms
   2.   ?    because they are much less likely to use new technologies
   3.   ?    because they redistribute income from producers to consumers
   4.   ?    because they restrict output and charge a higher price creating a deadweight loss of economic welfare

7. Which one of the following is true with a pure monopoly

   1.   ?    The market is dominated by just two firms
   2.   ?    The monopolist will always charge the highest possible price
   3.   ?    The monopoly's demand curve and the market demand curve are one and the same
   4.   ?    The monopolist will always charge a high price because it wants to maximise profits

8. A Natural Monopoly is most likely to exist when

   1.   ?    there are long term patents
   2.   ?    there are large barriers to entry
   3.   ?    there is government regulation of the industry
   4.   ?    there are large economies of scale

9. Comparing a monopoly and a competitive firm, the monopolist will _______________

   1.   ?    produce less at a lower price
   2.   ?    produce less at a higher price
   3.   ?    produce more at a lower price
   4.   ?    produce more at a higher price

10. A monopoly market such as the market for pharmaceuticals may be self-perpetuating in the ling run because profits may be used for

    1.   ?    research and development
    2.   ?    reductions in long run average costs
    3.   ?    advances in production technology
    4.   ?    all of the above

11. When a market is said to be contestable, the existing firms in the market must _____________ to avoid the entry of new competitors

    1.   ?    behave like competitive firms
    2.   ?    agree to collude in setting prices
    3.   ?    increase their spending on advertising and marketing
    4.   ?    sell the same good at different prices to consumers

12. True or False: A competitive market will always be more efficient in the allocation of resources than a market dominated by a few big suppliers / firms

    1.   ?    True
    2.   ?    False