PRACTICE QUESTIONS ON MARKET STRUCTURE



PRACTICE QUESTIONS ON MARKET STRUCTURE

1. Which of the following is probably the worst example of a perfectly competitive market?

a. the market for corn

b. the market for automobiles

c. the stock market

d. the market for wheat

2. For a perfectly competitive firm,

a. the marginal revenue curve and the demand curve are the same.

b. the marginal revenue curve and the marginal cost curve are the same.

c. the supply curve and the marginal revenue curve are the same.

d. the demand curve and the marginal cost curve are the same.

e. none of the above

3. Which of the following is not an example of a legal barrier to entry?

a. a beautician’s license

b. a patent

c. exclusive ownership of raw materials

d. a public franchise

e. a copyright

4. Which of the following statements is true?

a. The monopolist can sell all it can produce at the market price.

b. The marginal revenue curve of the single-price monopolist lies above its demand curve.

c. The marginal revenue curve of the single-price monopolist is the same as its demand curve.

d. The marginal revenue curve of the single-price monopolist lies below its demand curve.

5. In maximizing profits, a single-price monopolist will charge a price that is

a. less than marginal cost.

b. equal to marginal cost.

c. greater than marginal cost.

d. There is not enough information to answer the question.

18. Which of the following is an example of a monopolistic competitor?

a. General Motors

b. a wheat farmer in Iowa

c. a long-distance telephone company

d. a family-owned Italian restaurant

19. Which of the following industries is the best example of monopolistic competition?

a. cotton

b. electricity generation

c. automobiles

d. service stations

20. The monopolistic competitor produces the output at which

a. price equals marginal cost.

b. marginal revenue equals marginal cost.

c. there is resource allocative efficiency

d. average total cost is at a minimum.

6. In the theory of perfect competition,

a. sellers of the product are not influenced by other sellers and therefore have virtually complete control over the production and pricing of their product.

b. buyers of the product may have a preference as to whom they purchase from based on brand loyalty.

c. buyers and sellers of the product know everything that there is to know about the product.

d. it can be quite expensive for a firm to enter this type of market, but once the firm is established, it will be a profitable venture.

7. A “price taker” is a firm that

a. does not have the ability to control the price of the product it sells.

b. does have the ability, although limited, to control the price of the product it sells.

c. can raise the price of the product it sells and still sell some units of its product.

d. sells a differentiated product.

e. none of the above

8. The demand curve for a perfectly competitive firm

a. is downward sloping.

b. is upward sloping.

c. is perfectly horizontal.

d. is perfectly vertical.

e. may be downward or upward sloping, depending upon the type of product offered for sale.

9. The perfectly competitive firm will seek to produce the output level for which

a. average variable cost is at a minimum.

b. average total cost is at a minimum.

c. average fixed cost is at a minimum.

d. marginal cost equals marginal revenue.

10. Suppose Firm X is a monopolist and is receiving positive economic profits. What prevents other firms from directly competing away the profits?

a. high barriers to entry

b. antitrust laws

c. low barriers to entry

d. diseconomies of scale

e. none of the above

11. Which of the following is the best example of a monopoly?

a. a local power utility

b. a fast-food restaurant

c. a department store

d. a construction firm

12. Examples of perfect competition include

a. some agricultural markets.

b. the automobile market.

c. the soft drink market.

d. a and c

e. a, b, and c

13. The theory of perfect competition generally assumes that

a. sellers act independently of other sellers, but buyers do not act independently of other buyers.

b. buyers act independently of other buyers, but sellers do not act independently of other sellers.

c. buyers and sellers act independently of other buyers and sellers.

d. neither buyers nor sellers act independently of other buyers and sellers.

14. Perfectly competitive industries are

a. difficult to enter because there are already so many producers in the industry.

b. not particularly appealing or attractive to enter because there tend to be so many buyers that it is difficult to deal with them.

c. relatively easy to enter but not so easy to exit from.

d. a and b

e. none of the above

15. Marginal revenue is

a. total revenue divided by the quantity of output.

b. total profit minus total costs.

c. the change in total output brought about by using an additional unit of a variable input.

d. the change in dollar receipts brought about by selling an additional unit of the good.

e. the change in total revenue minus the change in total costs.

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