AP_Krugman_Textbook

576 section 10 Behind the Supply Curve: Profit, Production, and Costs

Module 57 AP Review

Check Your Understanding

1. In each of the following situations, what type of market
   structure do you think the industry represents?
   a. There are three producers of aluminum in the world, a good
   sold in many places.
   b. There are thousands of farms that produce
   indistinguishable soybeans to thousands of buyers.

c. Many designers sell high-fashion clothes. Each designer has

a distinctive style and a somewhat loyal clientele.

d. A small town in the middle of Alaska has one bicycle shop.

Solutions appear at the back of the book.

Tackle the Test: Multiple-Choice Questions

1. Which of the following is true for a perfectly competitive
   industry?
   I. There are many firms, each with a large market share.
   II. The firms in the industry produce a standardized product.
   III. There are barriers to entry and exit.
   a. I only
   b. II only
   c. III only
   d. I and II only
   e. I, II, and III


2. Which of the following is true for a monopoly?
   I. There is only one firm.
   II. The firm produces a product with many close substitutes.
   III. The industry has free entry and exit.
   a. I only
   b. II only
   c. III only
   d. I and II only
   e. I, II, and III


3. Which of the following is true for an oligopoly?
   I. There are a few firms, each with a large market share.
   II. The firms in the industry are interdependent.
   III. The industry experiences diseconomies of scale.

a. I only

b. II only

c. III only

d. I and II only

e. I, II, and III

4. Which of the following is true for a monopolistically
   competitive industry?
   I. There are many firms, each with a small market share.
   II. The firms in the industry produce a standardized
   product.
   III. Firms are price-takers.
   a. I only
   b. II only
   c. III only
   d. I and II only
   e. I, II, and III


5. Which of the following is an example of differentiated
   products?
   a. Coke and Pepsi
   b. automobiles and bicycles
   c. trucks and gasoline
   d. stocks and bonds
   e. gold and silver

Tackle the Test: Free-Response Questions

1. For each of the following characteristics, indicate which market
   structure(s) exhibit that characteristic.
   a. many sellers
   b. price-takers
   c. barriers to entry
   d. differentiated product

Answer (7 points)

a. 1 point:perfect competition

1 point:monopolistic competition

b. 1 point:perfect competition

c. 1 point:monopoly

1 point:oligopoly

d. 1 point:oligopoly

1 point:monopolistic competition

2. a. Draw a correctly labeled graph of a perfectly competitive
   firm’s demand curve if the market price is $10.
   b. What does the firm’s marginal revenue equal any time it sells
   one more unit of its output?