Use the following information to answer questions 1 and 2:
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 40-Q, where Q = Q₁ + Q₂. The marginal cost associated with producing in the two plants are MC₁ = 4 Q₁ and MC₂ = 8.

1			How much output should be produced in plant 1 in order to maximize profits?
			A)	2.
			B)	14.
			C)	8.
			D)	4.
2			What is the profit maximizing price that the firm should charge?
			A)	$12.
			B)	$26.
			C)	$24.
			D)	$38.
3			Which of the following is best characterized as perfectly competitive?
			A)	Internet providers.
			B)	Retail clothing stores.
			C)	Indiana corn farmers.
			D)	Local electricity services.
4			You are the manager of a firm that sells its product in a competitive market at a price of $45. Your firm's cost function is C = 27 + 4.5Q2. The profit-maximizing output for your firm is
			A)	2.
			B)	5.
			C)	3.
			D)	9.
5			The demand for the product of a perfectly competitive firm is
			A)	perfectly inelastic.
			B)	relatively inelastic.
			C)	perfectly elastic.
			D)	relatively elastic.
6			You are the manager of a monopoly that faces an inverse demand curve described by P = 240 - 12Q. Your costs are C = 32 + 48Q. The profit-maximizing price is
			A)	$48.
			B)	$156.
			C)	$96.
			D)	$144.
7			Which of the following statements is incorrect regarding perfectly competitive markets and monopolistically competitive markets?
			A)	Perfectly competitive firms produce homogeneous goods, while monopolistically competitive firms have differentiated products.
			B)	Monopolistically competitive firms charge prices above marginal costs in the long-run, while perfectly competitive firms charge prices equal to marginal costs.
			C)	Competition in both types of markets leaves firms with zero economic profits in the long run.
			D)	The long-run equilibrium in both types of markets has firms producing the level of output that equates prices to the minimum of average costs.
8			You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 75 + 5Q2. Your firm's maximum profits are
			A)	$25.
			B)	$50.
			C)	$75.
			D)	$100.
9			Which one of the following is not a potential source of monopoly power?
			A)	Cost complementarities.
			B)	Diseconomies of scale.
			C)	The patent system.
			D)	Economies of scope.
10			Let the demand function for a product be Q = 60 - 4P. The inverse demand function of this demand function is:
			A)	P = 15 – 0.25Q.
			B)	P = 40 + 6Q.
			C)	P = 60 – 4Q.
			D)	P = 60 + 0.25Q.
			E)	None of the above.
11			Suppose that initially the price is $24 in a perfectly competitive market. Firms are making zero economic profits. Then the market demand expands permanently and some firms enter the industry and the industry returns back to a long run equilibrium. The new equilibrium price, assuming cost conditions in the industry remain constant, will be
			A)	exactly equal to $24.
			B)	lower than $24.
			C)	higher than $24.
			D)	either lower than or higher than $24, depending on the number of firms that have entered the industry.
12			What is the profit maximization rule for a two-plant monopolist?
			A)	MC1(Q1) = MC2(Q2) = P(Q1 + Q2).
			B)	MC1(Q1 + Q2) = MC2(Q1 + Q2) = P (Q1 + Q2).
			C)	MC1(Q1) = MC2(Q2) = MR(Q1 + Q2).
			D)	MC1(Q1 + Q2) = MC2(Q1 + Q2) = MR (Q1 + Q2).
13			Which of the following is a correct representation of the profit maximization condition for a monopoly?
			A)	P = MR = MC.
			B)	ATC = MR.
			C)	P = MC.
			D)	MC = MR.
14			Which of the following is true regarding the long-run equilibrium relationship between price and costs in a monopolistically competitive industry?
			A)	P = MC.
			B)	P < MC.
			C)	P = minimum of average costs.
			D)	P > minimum of average costs.
15			One of the effects of the patent system is to
			A)	reduce the rewards for research and development.
			B)	temporarily provide monopoly power to the patent owner.
			C)	reduce the degree of monopoly power in the short term.
			D)	give firms less incentive to innovate.