Unit 4 of AP Microeconomics delves into the complexities of market structures, moving beyond the idealized world of perfect competition. This practice test will assess your understanding of monopolies, monopolistic competition, and oligopolies. Remember, mastering these concepts is crucial for success on the AP exam. This practice test is designed to mimic the difficulty and style of the actual exam, helping you identify areas needing further review.
Section 1: Multiple Choice Questions
Instructions: Choose the best answer for each multiple-choice question.
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Which of the following is NOT a characteristic of a perfectly competitive market? a) Many buyers and sellers b) Homogenous products c) High barriers to entry d) Free entry and exit
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A monopoly is characterized by: a) Many firms selling identical products b) A single seller of a unique product with significant barriers to entry c) A few large firms dominating the market d) Many firms selling differentiated products
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Which market structure features product differentiation? a) Perfect competition b) Monopoly c) Monopolistic competition d) Pure Monopoly
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A firm operating in a monopolistically competitive market faces a demand curve that is: a) Perfectly elastic b) Perfectly inelastic c) Downward sloping d) Vertical
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Game theory is most relevant to which market structure? a) Perfect competition b) Monopolistic competition c) Oligopoly d) Monopoly
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Price discrimination requires: a) A perfectly elastic demand curve b) The ability to segment the market into groups with different price elasticities of demand c) Identical products being sold at different prices to all consumers d) Perfect competition
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Which of the following is an example of a barrier to entry? a) Low startup costs b) Easy access to resources c) Government patents d) Many existing competitors
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In an oligopoly, firms often engage in: a) Price wars b) Collusion c) Both a and b d) Neither a nor b
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The Herfindahl-Hirschman Index (HHI) measures: a) The elasticity of demand b) Market concentration c) The level of competition d) Both b and c
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A firm's ability to set its price above marginal cost is greatest in which market structure? a) Perfect Competition b) Monopolistic Competition c) Oligopoly d) Monopoly
Section 2: Short Answer Questions
Instructions: Answer the following questions in complete sentences.
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Explain the difference between a natural monopoly and a government-created monopoly. Provide an example of each.
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Describe the key characteristics of monopolistic competition. How do firms in this market structure attempt to differentiate their products?
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Explain the concept of a Nash Equilibrium in the context of game theory. Give an example.
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Discuss the potential benefits and drawbacks of government regulation of monopolies.
Section 3: Graphing Question
Instructions: Draw a graph illustrating the short-run profit maximization of a monopolistically competitive firm. Clearly label the axes, the demand curve, the marginal revenue curve, the marginal cost curve, the average total cost curve, the profit-maximizing quantity, and the profit-maximizing price. Indicate the area representing the firm's economic profit (or loss).
Answer Key (Available upon request – contact your teacher)
This practice test provides a solid foundation for reviewing Unit 4 material. Remember to consult your textbook and class notes for a more comprehensive understanding. Good luck with your studies!
