Question 1

How would you classify the market for parcels delivery?

Accepted Answer

A)  Slightly contestable 
B)  Moderately contestable 
C)  Highly contestable 
D)  Not contestable 
A)  Slightly contestable 
B)  Moderately contestable 
C)  Highly contestable 
D)  Not contestable C

Question 2

Under perfect competition, a firm will increase output if marginal cost is less than price.

Accepted Answer

A) True 
 B)False  TRUE

Question 3

Which one of the following is true for the marginal firm under perfect competition?

Accepted Answer

A)  Whether it earns normal or supernormal profits in the SR and LR will depend on the conditions in that particular industry. 
B)  It can earn supernormal profits in both the SR and LR. 
C)  It can earn supernormal profits in the LR but only normal profits in the SR. 
D)  It can earn only normal profits in both the SR and LR. 
E)  It can earn supernormal profits in the SR but only normal profits in the LR. 
A)  Whether it earns normal or supernormal profits in the SR and LR will depend on the conditions in that particular industry. 
B)  It can earn supernormal profits in both the SR and LR. 
C)  It can earn supernormal profits in the LR but only normal profits in the SR. 
D)  It can earn only normal profits in both the SR and LR. 
E)  It can earn supernormal profits in the SR but only normal profits in the LR. E

Question 4

The following cost and revenue data apply to a monopolist. Start by identifying the missing figures.
   Based on these figures, what is the profit- maximising output?

Accepted Answer

A)  5 units 
B)  3 units 
C)  2 units 
D)  4 units 
E)  1 unit 
A)  5 units 
B)  3 units 
C)  2 units 
D)  4 units 
E)  1 unit

Question 5

If entry and exit are not costless, a monopoly can still make supernormal profits in the long run.

Accepted Answer

A) True 
 B)False

Question 6

What are some of the causes of barriers to entry?

Accepted Answer

• Economies of scale - average costs fal

Question 7

Why is costless exit so important in a contestable market?

Accepted Answer

When a firm sets up a new business it wi

Question 8

A monopolist will always sell in the inelastic portion of its demand curve.

Accepted Answer

A) True 
 B)False

Question 9

The fast food industry is not considered perfectly competitive because

Accepted Answer

A)  the firms all produce an identical product. 
B)  the firm's products are differentiated. 
C)  entry and exit are strictly regulated by the government. 
D)  there are a very large number of firms. 
A)  the firms all produce an identical product. 
B)  the firm's products are differentiated. 
C)  entry and exit are strictly regulated by the government. 
D)  there are a very large number of firms.

Question 10

Economies of scope occur when a firm's average costs are lower because it produces a range of products.

Accepted Answer

A) True 
 B)False

Question 11

A 5- firm concentration ratio shows

Accepted Answer

A)  the proportion of industries in the economy that have just five firms. 
B)  the size of the largest firm relative to the total size of the five largest firms. 
C)  the share of industry profits earned by the five largest firms. 
D)  the output of good X produced by the five largest firms, as a proportion of their total output of all types of goods. 
E)  the sales of the five largest firms, as a proportion of the total industry sales. 
A)  the proportion of industries in the economy that have just five firms. 
B)  the size of the largest firm relative to the total size of the five largest firms. 
C)  the share of industry profits earned by the five largest firms. 
D)  the output of good X produced by the five largest firms, as a proportion of their total output of all types of goods. 
E)  the sales of the five largest firms, as a proportion of the total industry sales.

Question 12

The following diagram shows cost and revenue curves of a monopolist.
  The firm will produce at an output where

Accepted Answer

A)  MC = AR 
B)  MC = MR 
C)  MC = AC 
D)  MR = AC 
A)  MC = AR 
B)  MC = MR 
C)  MC = AC 
D)  MR = AC

Question 13

You live in a small town where there is only one Indian restaurant. The next Indian restaurant is 30 miles away. Is the Indian restaurant in your town a monopoly?

Accepted Answer

A)  No, because there are Indian restaurants in other towns. 
B)  Yes, because the demand curve facing the Indian restaurant is downward- sloping. 
C)  No, because there are close substitutes for the Indian restaurant such as other restaurants in town and Indian food sold in the local supermarket. 
D)  Yes, because it is the only Indian restaurant in the town. 
A)  No, because there are Indian restaurants in other towns. 
B)  Yes, because the demand curve facing the Indian restaurant is downward- sloping. 
C)  No, because there are close substitutes for the Indian restaurant such as other restaurants in town and Indian food sold in the local supermarket. 
D)  Yes, because it is the only Indian restaurant in the town.

Question 14

The degree of competition in an industry can be calculated by measuring the

Accepted Answer

A)  circulation ratio. 
B)  circulation denominator. 
C)  concentration ratio. 
D)  concentration numerator. 
A)  circulation ratio. 
B)  circulation denominator. 
C)  concentration ratio. 
D)  concentration numerator.

Question 15

Which of the following statements about contestable markets is false?

Accepted Answer

A)  The higher the entry costs to the industry, the greater the threat of competition. 
B)  If there is potential competition, a monopolist may be forced to behave as if it were in a competitive market. 
C)  The lower the exit costs from the industry, the greater the threat of competition. 
D)  The threat of competition has a similar effect to actual competition. 
E)  Monopolies may remain because of economies of scale and the size of the market. 
A)  The higher the entry costs to the industry, the greater the threat of competition. 
B)  If there is potential competition, a monopolist may be forced to behave as if it were in a competitive market. 
C)  The lower the exit costs from the industry, the greater the threat of competition. 
D)  The threat of competition has a similar effect to actual competition. 
E)  Monopolies may remain because of economies of scale and the size of the market.

Question 16

The wool industry is a perfectly competitive industry. It is difficult for a wool producer to make excess profits because

Accepted Answer

A)  the demand curve facing each wool producer is perfectly elastic. 
B)  of the assumption that wool producers in the industry do not 'differentiate' their products. 
C)  wool producers are 'price- takers' 
D)  of the assumption of free entry into the wool industry. 
A)  the demand curve facing each wool producer is perfectly elastic. 
B)  of the assumption that wool producers in the industry do not 'differentiate' their products. 
C)  wool producers are 'price- takers' 
D)  of the assumption of free entry into the wool industry.

Question 17

The assumption of free entry implies that

Accepted Answer

A)  a firm in monopolistic competition can never earn a profit. 
B)  firms will always earn a profit since new firms can enter the industry at any time they like. 
C)  the government regulates the number of firms that are allowed in an industry. 
D)  if firms in an industry are making excessively high profits, new firms are likely to enter the industry. 
A)  a firm in monopolistic competition can never earn a profit. 
B)  firms will always earn a profit since new firms can enter the industry at any time they like. 
C)  the government regulates the number of firms that are allowed in an industry. 
D)  if firms in an industry are making excessively high profits, new firms are likely to enter the industry.

Question 18

Explain the four decisions that must be made by a firm that has market power, i.e. a monopolist.

Accepted Answer

A firm with market power must

Question 19

In June 2000 a US Federal Judge ruled that Microsoft  should be split into two in order to

Accepted Answer

A)  achieve economies of scale. 
B)  prevent it operating as a monopoly. 
C)  improve the stability of the Windows  operating system. 
D)  increase product development. 
E)  create more employment. 
A)  achieve economies of scale. 
B)  prevent it operating as a monopoly. 
C)  improve the stability of the Windows  operating system. 
D)  increase product development. 
E)  create more employment.

Question 20

If a natural monopoly is broken up into smaller competing firms, the price of the product will increase because the smaller competing firms will face higher average costs of production than the natural monopolist.

Accepted Answer

A) True 
 B)False

Exam 11: Profit Maximisation Under Perfect Competition and Monopoly

How would you classify the market for parcels delivery?

Under perfect competition, a firm will increase output if marginal cost is less than price.

Which one of the following is true for the marginal firm under perfect competition?

The following cost and revenue data apply to a monopolist. Start by identifying the missing figures. Based on these figures, what is the profit- maximising output?

If entry and exit are not costless, a monopoly can still make supernormal profits in the long run.

What are some of the causes of barriers to entry?

Why is costless exit so important in a contestable market?

A monopolist will always sell in the inelastic portion of its demand curve.

The fast food industry is not considered perfectly competitive because

Economies of scope occur when a firm's average costs are lower because it produces a range of products.

A 5- firm concentration ratio shows

The following diagram shows cost and revenue curves of a monopolist. The firm will produce at an output where

You live in a small town where there is only one Indian restaurant. The next Indian restaurant is 30 miles away. Is the Indian restaurant in your town a monopoly?

The degree of competition in an industry can be calculated by measuring the

Which of the following statements about contestable markets is false?

The wool industry is a perfectly competitive industry. It is difficult for a wool producer to make excess profits because

The assumption of free entry implies that

Explain the four decisions that must be made by a firm that has market power, i.e. a monopolist.

In June 2000 a US Federal Judge ruled that Microsoft should be split into two in order to

If a natural monopoly is broken up into smaller competing firms, the price of the product will increase because the smaller competing firms will face higher average costs of production than the natural monopolist.

The Business Environment and Business Economics

Economics and the World of Business

Business Organisations

The Working of Competitive Markets

Business in a Market Environment

Demand and the Consumer

Demand and the Firm

Products, Marketing and Advertising

Costs of Production

Revenue and Profit

Profit Maximisation Under Imperfect Competition

An Introduction to Business Strategy

Alternative Theories of the Firm

Growth Strategy

The Small-Firm Sector

Pricing Strategy

Labour Markets, Wages and Industrial Relations

Investment and the Employment of Capital

Reasons for Government Intervention in the Market

Government and the Firm

Government and the Market

Globalisation and Multinational Business

International Trade

Trading Blocs

The Macroeconomic Environment of Business

The Balance of Payments and Exchange Rates

Banking, Money and Interest Rates

Business Activity, Employment and Inflation

Demand-Side Policy

Supply-Side Policy

International Economic Policy

Filters

In June 2000 a US Federal Judge ruled that Microsoftshould be split into two in order to