AP Micro Microeconomics: Market Structures 3

Question 1

A monopolist practicing perfect (first-degree) price discrimination will produce a quantity where:

Accepted Answer

Price equals marginal cost for every unit sold

Answer

With perfect price discrimination, the firm charges each consumer their maximum willingness to pay, eliminating consumer surplus and producing where P = MC.

Question 2

Which market structure generates the largest deadweight loss relative to the competitive outcome?

Accepted Answer

Oligopoly with collusion acting as a monopoly

Answer

A colluding oligopoly that acts as a joint monopoly restricts output to the monopoly level, producing the greatest deadweight loss.

Question 3

In a Cournot duopoly, each firm chooses its output assuming:

Accepted Answer

The rival's output remains fixed

Answer

The Cournot model assumes each firm treats the rival's quantity as fixed when choosing its own profit-maximizing output.

Question 4

Excess capacity in monopolistic competition refers to the fact that in long-run equilibrium:

Accepted Answer

Firms produce below the output level that minimizes average total cost

Answer

Monopolistically competitive firms operate on the downward-sloping portion of their ATC curves, producing less than the minimum-cost output.

Question 5

Which best describes the Bertrand model of oligopoly?

Accepted Answer

Firms compete by setting prices, leading to P = MC in equilibrium

Answer

In the Bertrand model, price competition between firms with identical products drives price down to marginal cost, replicating the competitive outcome.

AP Practice Test

AP Practice Test

AP Micro Microeconomics: Market Structures 3