question
Perfectly competitive firms respond to changing market conditions by varying their
answer
output
question
Which of the following is likely to be present in a perfectly competitive market?
a. firms producing identical products
b. government licenses
c. nonprice competition such as advertising
d. high capital costs
e. patents.
a. firms producing identical products
b. government licenses
c. nonprice competition such as advertising
d. high capital costs
e. patents.
answer
A.
question
. A firm in a perfectly competitive market
a. can raise the price of its product and sell more output
b. can lower the price of its product and sell more output
c. can increase its supply to lower the price
d. can decrease its supply to raise the price
e. accepts the market price for its product
a. can raise the price of its product and sell more output
b. can lower the price of its product and sell more output
c. can increase its supply to lower the price
d. can decrease its supply to raise the price
e. accepts the market price for its product
answer
E
question
The demand curve for the output of a perfectly competitive firm is
a. perfectly elastic
b. perfectly inelastic
c. unit elastic
d. downward sloping
e. nonlinear
a. perfectly elastic
b. perfectly inelastic
c. unit elastic
d. downward sloping
e. nonlinear
answer
A
question
Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $9. Which of the following will happen?
a. The firm will not sell any output.
b. The firm will sell less output than its competitors.
c. The firm will make more profit than it could at the $10 price.
d. The firm will make less profit than it could at the $10 price.
e. The firm's revenue will increase and its costs may decrease.
a. The firm will not sell any output.
b. The firm will sell less output than its competitors.
c. The firm will make more profit than it could at the $10 price.
d. The firm will make less profit than it could at the $10 price.
e. The firm's revenue will increase and its costs may decrease.
answer
D
question
For perfectly competitive firms, what is the relationship among market price (P), average revenue (AR), and marginal revenue (MR)?
a. P < AR = MR
b. P > AR = MR
c. P = AR > MR
d. P = AR < MR
e. P = AR = MR
a. P < AR = MR
b. P > AR = MR
c. P = AR > MR
d. P = AR < MR
e. P = AR = MR
answer
E
question
The golden rule of profit maximization states that any firm maximizes profit by producing where
a. demand is unit elastic, and total revenue is greatest
b. marginal revenue equals marginal cost
c. price equals marginal revenue
d. price equals marginal cost
e. price equals average revenue
a. demand is unit elastic, and total revenue is greatest
b. marginal revenue equals marginal cost
c. price equals marginal revenue
d. price equals marginal cost
e. price equals average revenue
answer
B
question
. If a perfectly competitive firm is incurring a short-run loss, it
a. then will incur a long-run loss
b. will shut down
c. will continue to operate in the short run if its variable cost is covered
d. will continue to operate in the short run if its fixed cost is covered
e. will raise its price in the short run
a. then will incur a long-run loss
b. will shut down
c. will continue to operate in the short run if its variable cost is covered
d. will continue to operate in the short run if its fixed cost is covered
e. will raise its price in the short run
answer
C
question
Which characteristic of perfect competition ensures that economic profit will be zero in the long run?
a. each firm's output is small in relation to total market supply
b. there is freedom of entry and exit in the market
c. the product is homogeneous
d. buyers and sellers are fully informed about the price and availability of all resources and products
e. firms are price takers
a. each firm's output is small in relation to total market supply
b. there is freedom of entry and exit in the market
c. the product is homogeneous
d. buyers and sellers are fully informed about the price and availability of all resources and products
e. firms are price takers
answer
B
question
Which of the following describes the market structure of monopoly?
a. many firms with some control over price, and considerable product differentiation
b. a single firm producing all of the output for the industry
c. a few firms with some control over price, producing similar products which are close substitutes
d. a few firms with no control over price, producing highly differentiated products
e. many firms with no control over price, producing identical products with no differentiation
a. many firms with some control over price, and considerable product differentiation
b. a single firm producing all of the output for the industry
c. a few firms with some control over price, producing similar products which are close substitutes
d. a few firms with no control over price, producing highly differentiated products
e. many firms with no control over price, producing identical products with no differentiation
answer
B
question
Natural monopolies form when
a. small firms merge to form larger firms
b. long-run average cost declines as a firm expands output
c. one firm's monopoly position is created and enforced by the government
d. one firm receives patent protection for certain basic production processes
e. one firm has control over the entire supply of a basic input required to produce the product
a. small firms merge to form larger firms
b. long-run average cost declines as a firm expands output
c. one firm's monopoly position is created and enforced by the government
d. one firm receives patent protection for certain basic production processes
e. one firm has control over the entire supply of a basic input required to produce the product
answer
B
question
The main reason a monopolist can earn long-run economic profit, whereas a perfectly competitive firm cannot, is that
a. monopolists operate under economies of scale
b. perfectly competitive firms have opportunity costs
c. there are no barriers to entry in perfect competition
d. demand for the monopolist's output is elastic
e. demand for the monopolist's output is inelastic
a. monopolists operate under economies of scale
b. perfectly competitive firms have opportunity costs
c. there are no barriers to entry in perfect competition
d. demand for the monopolist's output is elastic
e. demand for the monopolist's output is inelastic
answer
C
question
When compared to firms in perfect competition, monopolists tend to charge __________ prices and offer __________ quantities of output.
a. higher; lower
b. lower; lower
c. lower; higher
d. higher; higher
e. higher; the same
a. higher; lower
b. lower; lower
c. lower; higher
d. higher; higher
e. higher; the same
answer
A
question
The practice of charging different prices to different consumers of the same product is called
a. monopolistic pricing
b. unit pricing
c. price discrimination
d. elasticity pricing
e. marginal cost pricing
a. monopolistic pricing
b. unit pricing
c. price discrimination
d. elasticity pricing
e. marginal cost pricing
answer
C
question
If Family Travel Agency, a monopolistic competitor, offers services that are differentiated from the services of other producers in the industry, it
a. faces a perfectly elastic demand curve
b. is a price taker
c. has some power to control the price it charges
d. faces a perfectly inelastic demand curve
e. produces a product with no close substitutes
a. faces a perfectly elastic demand curve
b. is a price taker
c. has some power to control the price it charges
d. faces a perfectly inelastic demand curve
e. produces a product with no close substitutes
answer
C
question
What do monopolistic competition, pure monopoly, and perfect competition have in common?
a. free entry
b. long-run economic profits
c. the rule of profit maximization
d. price taking
e. differentiated product
a. free entry
b. long-run economic profits
c. the rule of profit maximization
d. price taking
e. differentiated product
answer
C
question
Which of the following characteristics does perfect competition share with monopolistic competition?
a. zero long-run economic profit
b. price-taking firms
c. homogeneous product
d. some barriers to entry
e. economies of scale in production
a. zero long-run economic profit
b. price-taking firms
c. homogeneous product
d. some barriers to entry
e. economies of scale in production
answer
A
question
. Oligopolistic industries consist of
a. a few interdependent firms
b. a few independent firms
c. many interdependent firms
d. many independent firms
e. a small monopoly
a. a few interdependent firms
b. a few independent firms
c. many interdependent firms
d. many independent firms
e. a small monopoly
answer
A
question
It is harder to explain the behavior of firms in oligopoly than in other market structures because in oligopoly
a. the firms act independently of each other
b. the demand curve can slope upward
c. only differentiated products are produced
d. only homogeneous products are produced
e. firms base their decisions on what their rivals do
a. the firms act independently of each other
b. the demand curve can slope upward
c. only differentiated products are produced
d. only homogeneous products are produced
e. firms base their decisions on what their rivals do
answer
E
question
Collusion occurs when
a. firms get together to maximize joint profits
b. a firm chooses a level of output to maximize its own profit
c. firms refuse to follow their price leaders
d. firms petition their U.S. senators for favors
e. two firms' price and output decisions come into conflict
a. firms get together to maximize joint profits
b. a firm chooses a level of output to maximize its own profit
c. firms refuse to follow their price leaders
d. firms petition their U.S. senators for favors
e. two firms' price and output decisions come into conflict
answer
A
question
If all six suppliers of cement to Metropolis all agree to establishes a price of $45 per ton, this would be
a. a legal contract
b. price discrimination
c. cost-plus pricing
d. a cartel
e. beneficial to consumers
a. a legal contract
b. price discrimination
c. cost-plus pricing
d. a cartel
e. beneficial to consumers
answer
D
question
Each member of a cartel
a. faces a temptation to cheat on the agreement because raising its price slightly above the established price will usually increase the firm's sales and profit
b. faces a temptation to cheat on the agreement because lowering its price slightly below the established price will usually increase the firm's sales and profit
c. has no temptation to cheat on the agreement because lowering its price slightly below the established price will usually have no impact on the firm's sales and profit
d. has no temptation to cheat on the agreement because raising its price slightly above the established price will usually decrease the firm's sales and profit
e. has no temptation to cheat on the agreement because lowering its price slightly below the established price will usually lower the firm's sales and profit
a. faces a temptation to cheat on the agreement because raising its price slightly above the established price will usually increase the firm's sales and profit
b. faces a temptation to cheat on the agreement because lowering its price slightly below the established price will usually increase the firm's sales and profit
c. has no temptation to cheat on the agreement because lowering its price slightly below the established price will usually have no impact on the firm's sales and profit
d. has no temptation to cheat on the agreement because raising its price slightly above the established price will usually decrease the firm's sales and profit
e. has no temptation to cheat on the agreement because lowering its price slightly below the established price will usually lower the firm's sales and profit
answer
B
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