AP Micro Microeconomics: Market Structures 2

Question 1

In an oligopoly, the kinked demand curve model predicts that if one firm raises its price above the kink, rivals will:

Accepted Answer

Not follow, leaving the firm with fewer customers

Answer

Rivals do not match price increases in the kinked demand curve model, making demand elastic above the kink and causing the firm to lose customers.

Question 2

Which condition is true for a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

Price equals average total cost

Answer

In long-run monopolistic competition, free entry drives economic profit to zero, so price equals average total cost.

Question 3

A natural monopoly arises when:

Accepted Answer

Long-run average costs continuously decline over the relevant range of market demand

Answer

A natural monopoly exists when one firm can serve the entire market at lower average cost than multiple competing firms due to continuously declining LRAC.

Question 4

Game theory is most useful for analyzing which market structure?

Accepted Answer

Oligopoly

Answer

Oligopoly involves strategic interdependence among a few firms, making game theory the appropriate tool for analyzing their decisions.

Question 5

Compared to a perfectly competitive market, a monopoly produces:

Accepted Answer

Less output at a higher price

Answer

A monopolist restricts output below the competitive level and charges a higher price to maximize profit.

AP Practice Test

AP Practice Test

AP Micro Microeconomics: Market Structures 2