Unit 4: Imperfect Competition
Micro · Unit 4 · Paper 3

Imperfect Competition unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1Paper 2Paper 3
Each paper is built from this unit’s 48 terms and is the same for everyone, so a teacher can assign “Unit 4, Paper 3” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.
Suggested time 37 min 34 points0/17 attempted
1

Why MR lies below price

2

Socially optimal price regulation

3

Three conditions for price discrimination

4

Transfer versus deadweight loss

5

Long-run equilibrium in monopolistic competition

6

Collusion

7

Monopoly

8

Monopoly output and price

9

Dominant strategy vs Nash equilibrium

10

Monopolistic competition vs perfect competition

11

Excess capacity

12

Concentration ratio

Short answer 1. Define or explain: Fair-return price regulation

3 pts

Short answer 2. Define or explain: Where the deadweight loss triangle sits

3 pts

Short answer 3. Define or explain: Nash equilibrium

3 pts

Short answer 4. Define or explain: Cartel

3 pts

Free response

10 pts

LONG QUESTION. Voda Reservoir is a profit-maximizing firm and the only producer of bottled water in a country — a monopoly. Currently, Voda Reservoir is earning negative economic profit.

A. Draw (describe precisely) a correctly labeled graph for Voda Reservoir showing: (i) the profit-maximizing quantity QM; (ii) the profit-maximizing price PM; (iii) an average total cost curve consistent with negative economic profit, labeled ATC; (iv) the area of deadweight loss, shaded completely.

B. Suppose the government requires Voda Reservoir to produce the socially optimal quantity. State where on the part-A graph the socially optimal quantity QS is shown.

C. Suppose instead the government grants a per-unit subsidy to Voda Reservoir. What will happen to Voda Reservoir’s profit-maximizing quantity of bottled water? Explain.

D. Suppose new producers have entered the bottled-water market and Voda Reservoir continues to operate. Will the demand for Voda Reservoir’s bottled water become more elastic, become less elastic, or stay the same?

E. Voda Reservoir hires workers in a perfectly competitive labor market. (i) If the demand for bottled water increases, what happens to Voda Reservoir’s demand for labor? Explain. (ii) A new regulation raises the minimum age for workers in bottled-water factories. What will happen to the market wage in the short run? Explain.