4.7 MC Answers and Review

5 min readdecember 17, 2021

AP Microeconomics 🤑

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Answers and Review for Multiple Choice Practice on Imperfect Competition

STOP ⛔ Before you look at the answers, make sure you gave this practice quiz a try so you can assess your understanding of the concepts covered in Unit 4. Click here for the practice questions: AP Micro Unit 4 Multiple Choice Questions.

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Facts about the test: The AP Macroeconomics exam has 70 multiple choice questions and you will be given 1 hour to complete the section. That means it should take you around 8 minutes to complete 10 questions.
*The following questions were not written by College Board and, although they cover information outlined in the AP Microeconomics Course and Exam Description, the formatting on the exam may be different.

1. The four market structures include perfect competition, monopoly, oligopoly, and . . .
A. comparative advantage  
B. monopolistic competition
C. oligopoly competition
D. socialism
Explanation: The four market structures: perfect competition, monopoly, oligopoly, and monopolistic competition.
📄 Study Unit 4.4: Monopolistic Competition

2. A barrier to entry to an imperfect competition market includes:
A. terms of trade
B. high start-up costs
C. demand for goods
D. religious persecution
Explanation: Barriers to entry for imperfect competition: high start-up costs; geography/ownership of raw materials; legal barriers.
📄 Study Unit 4.1: Intro to Imperfect Competition

3. Imperfectly competitive firms are price makers, so their demand curves are:
A. constantly shifting to the left
B. downward sloping
C. upward sloping
D. nonexistent
Explanation: To sell more, an imperfectly competitive firm must lower its price.
📄 Study Unit 4.3: Price Discrimination

4. A monopoly will only produce in this range of the demand curve:
A. elastic
B. inelastic
C. uninsured
D. restricted
Explanation: In this range, total revenue and quantity are both increasing.
📄 Study Unit 4.2: Monopolies

5. A monopoly should produce where MR equals this on the firm's cost curve:
D. demand
Explanation: A monopolist can determine its profit-maximizing price and quantity by analyzing the marginal revenue and marginal costs of producing an extra unit. A profit-maximizing monopoly should follow the rule of producing up to the quantity where marginal revenue is equal to marginal cost (MR = MC).
📄 Study Unit 4.2: Monopolies

6. Producing at the lowest possible cost is called:
A. allocative efficiency
B. economic efficiency
C. productive efficiency
D. zero efficiency
Explanation: Productive efficiency is where the minimum amount of resources is being used by the producer; graphically where price equals minimum ATC.
📄 Study Unit 4.2: Monopolies

7. When one firm can produce the socially optimal quantity at the lowest cost due to economies of scale:
A. free trade
B. natural monopoly
C. perfect competition
D. socialism
Explanation: A natural monopoly is when it makes sense to have a monopoly. An industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming advantage over potential competitors.
📄 Study Unit 4.2: Monopolies

8. In analyzing a monopoly from the point of view of economic efficiency, a monopoly . . .
A. produces nothing 
B. produces too little and charges too low a price
C. produces too much
D. produces too little and charges too high a price
Explanation: Monopolies can set the number of goods produced as well as the price of those goods because of the lack of competition in that market.
📄 Study Unit 4.2: Monopolies

9. Producing at the amount most desired by society is called:
A. allocative efficiency
B. economic efficiency
C. productive efficiency
D. zero efficiency
Explanation: Allocative efficiency is where a firm is allocating resources towards the products society wants; graphically it is where price equals marginal cost.
📄 Study Unit 4.2: Monopolies

10. The practice of selling the same products to different buyers at different prices is known as
A. average total cost
B. marginal utility
C. unfair competition
D. price discrimination
Explanation: Example: Tickets to a museum where adults pay more than children; airline tickets for business vs. personal use.
📄 Study Unit 4.3: Price Discrimination

11. Since a price discriminating monopoly charges each person differently, the marginal revenue will equal the:
B. demand
Explanation: Quantity produced will be where D=MR=MC.
📄 Study Unit 4.3: Price Discrimination

12. In monopolistic competition there are price makers, so this would be less than demand:
B. supply
Explanation: In the short run, this graph looks just like a monopoly earning a profit. In the long run, new firms will enter, driving down the DEMAND for firms already in the market.
📄 Study Unit 4.2: Monopolies

13. These occur when a few large firms control an industry:
A. oligopolies
B. monopolies
C. no trade zones
D. perfect competitions
Explanation: Oligopolies have high barriers to entry, which keeps other firms from entering the industry.
📄 Study Unit 4.5: Oligopolies and Game Theory

14. Oligopolies have a tendency to engage in this to cooperate with rivals, rig a situation, and maximize positive outcomes.
A. collusion 
B. demolition
C. price discrimination
D. price gouging
Explanation: Collusion results in the incentive to cheat.
📄 Study Unit 4.5: Oligopolies and Game Theory

15. A group of producers that create an agreement to fix prices high is called:
B. cartel
C. demand determinants
D. price discrimination
Explanation: Cartels set price and output at an agreed upon level and must have a way to "punish cheaters."
📄 Study Unit 4.5: Oligopolies and Game Theory

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