CIA4U, Basic Market Structures Practice Test, January 5, 2011
CIA4A
Basic Market Structures Practice Test
(31 Marks)
Section A: Multiple Choice
Circle the option that correctly completes the statement. (1 mark each = 6 marks)
1. In a purely competitive firm, we see that the supply curve is the same as:
a)
b)
c)
d)
e)
the demand curve;
average total cost curve;
marginal cost curve;
average variable cost curve;
marginal revenue curve.
2. In a purely competitive firm, we see that the demand curve is the same as:
a)
b)
c)
d)
e)
the supply curve;
average total cost curve;
marginal cost curve;
average variable cost curve;
marginal revenue curve.
3. In the long-run, a purely competitive firm will:
a)
b)
c)
d)
e)
earn economic profits;
earn zero economic profits;
earn less than no economic profits;
earn “normal” profits;
b and d.
4. Both purely competitive firms and monopolies will maximize profits by producing at a level of output
where:
a)
b)
c)
d)
e)
the difference between total revenue and total cost is the least;
the consumer’s are not willing to pay anything more;
marginal revenue is equal to price;
marginal cost is equal to marginal revenue;
a and d.
5. A monopoly:
a)
b)
c)
d)
e)
is a price-taker;
is a price-maker;
has no market power;
earns normal profits in the long-run;
b and c.
6. Which of the following would not necessarily create a monopoly?
a)
b)
c)
d)
e)
legal barriers to market entry (such as patents or copyrights);
little or no economic profit being earned in the market;
control of essential resources;
prohibitive economies of scale;
none of the above.
CIA4U, Basic Market Structures Practice Test, January 5, 2011
Section B: Calculations and Graphing
Complete the following calculations on this paper. Show your work. (25 marks)
1. i) Complete the following table. The market price of the product is $100.00. (4 marks)
10
Total
Fixed
Costs
($)
350
Total
Variable
Costs
($)
510
11
350
600
950
12
350
750
1100
13
350
930
1280
Quantity
Total
Costs
($)
860
Marginal
Costs
($)
Total
Revenue
($)
Marginal
Revenue
($)
Profit
($)
110
ii) Identify the profit maximizing output for a purely competitive firm: ___________ (1 mark)
2. i) In the blank graph below, illustrate the basic shape and relationship between the following curves for
a purely competitive firm that is earning economic profits: i) demand, ii) marginal revenue, iii) average
fixed costs, iv) average variable costs, v) average total costs, and vi) marginal costs. Note: Be sure to
label each curve at the right-hand side with the appropriate acronym [i.e. D, MR, AFC, etc.] (6 marks)
ii) Be sure to label both of the axes of your graph. (1 mark)
iii) Using your graph, clearly identify the quantity and price at which profits would be maximized for this
purely competitive firm. Labels these points P* and q*. (2 marks)
iv) Shade in the economic profits being earned by this firm. (2 marks)
CIA4U, Basic Market Structures Practice Test, January 5, 2011
3. i) In the blank graph below, illustrate the basic shape and relationship between the following curves for
a monopoly firm that is earning economic profits: (4 marks)




Note:
demand,
marginal revenue,
average total costs,
marginal costs.
Label each curve at the right-hand side with the appropriate acronym (i.e. D, MR, ATC, etc.)
ii) Be sure to properly label both of the axes of your graph. (1 mark)
iii) Using your graph, clearly identify the quantity and price at which profits would be maximized for this
monopoly. Labels these points P* and q*. (2 marks)
CIA4U, Basic Market Structures Practice Test, January 5, 2011
ANSWER KEY
Section A: Multiple Choice
Circle the option that correctly completes the statement. (1 mark each = 6 marks)
1. In a purely competitive firm, we see that the supply curve is the same as:
a)
b)
c)
d)
e)
the demand curve;
average total cost curve;
marginal cost curve;
average variable cost curve;
marginal revenue curve.
2. In a purely competitive firm, we see that the demand curve is the same as:
a)
b)
c)
d)
e)
the supply curve;
average total cost curve;
marginal cost curve;
average variable cost curve;
marginal revenue curve.
3. In the long-run, a purely competitive firm will:
a)
b)
c)
d)
e)
earn economic profits;
earn zero economic profits;
earn less than no economic profits;
earn “normal” profits;
b and d.
4. Both purely competitive firms and monopolies will maximize profits by producing at a level of output
where:
a)
b)
c)
d)
e)
the difference between total revenue and total cost is the least;
the consumer’s are not willing to pay anything more;
marginal revenue is equal to price;
marginal cost is equal to marginal revenue;
a and d.
5. A monopoly:
a)
b)
c)
d)
e)
is a price-taker;
is a price-maker;
has no market power;
earns normal profits in the long-run;
b and c.
6. Which of the following would not necessarily create a monopoly?
a)
b)
c)
d)
e)
legal barriers to market entry (such as patents or copyrights);
little or no economic profit being earned in the market;
control of essential resources;
prohibitive economies of scale;
none of the above.
CIA4U, Basic Market Structures Practice Test, January 5, 2011
Section B: Calculations and Graphing
Complete the following calculations on this paper. Show your work. (25 marks)
1) Complete the following table for a purely competitive firm. The market price of the product is $100.00.
(4 marks)
10
Total
Fixed
Costs
($)
350
Total
Variable
Costs
($)
510
11
350
12
13
Quantity
Total
Costs
($)
Marginal
Costs
($)
Total
Revenue
($)
Marginal
Revenue
($)
860
110
1000
100
140
600
950
90
1100
100
150
350
750
1100
150
1200
100
100
350
930
1280
180
1300
100
20
Profit
($)
ii) Identify the profit maximizing output for a purely competitive firm: (1 mark) __11__
2. i) In the blank graph below, illustrate the basic shape and relationship between the following curves for
a purely competitive firm that is earning economic profits: i) demand, ii) marginal revenue, iii) average
fixed costs, iv) average variable costs, v) average total costs, and vi) marginal costs. Note: Be sure to
label each curve at the right-hand side with the appropriate acronym [i.e. D, MR, AFC, etc.] (6 marks)
ii) Be sure to label both of the axes of your graph. (1 mark)
iii) Using your graph, clearly identify the quantity and price at which profits would be maximized for this
purely competitive firm. Labels these points P* and q*. (2 marks)
iv) Shade in the economic profits being earned by this firm. (2 marks)
CIA4U, Basic Market Structures Practice Test, January 5, 2011
3. i) In the blank graph below, illustrate the basic shape and relationship between the following curves for
a monopoly firm that is earning economic profits: (4 marks)




Note:
demand,
marginal revenue,
average total costs,
marginal costs.
Label each curve at the right-hand side with the appropriate acronym (i.e. D, MR, ATC, etc.)
ii) Be sure to properly label both of the axes of your graph. (1 mark)
iii) Using your graph, clearly identify the quantity and price at which profits would be maximized for this
monopoly. Labels these points P* and q*. (2 marks)
iv) Shade in the economic profits being earned by this firm. (2 marks)