Deck 1: Market Models, Structures and Competition

Question 1

A market is clearly NOT perfectly competitive if which of the following is true in equilibrium

A)price exceeds marginal cost.
B)price exceeds average variable cost.
C)price exceeds average fixed cost.
D)price equals opportunity cost

Answer 1

price exceeds marginal cost.

Question 2

If a perfectly competitive industry is in long-run equilibrium, which of the following is most likely to be true

A)some firms can be expected to leave the industry.
B)individual firms are not operating at the minimum points on their average total cost curves.
C)firms are earning a return on investment that is equal to their opportunity costs.
D)some factors are not receiving a return equal to their opportunity costs.

Answer 2

firms are earning a return on investment that is equal to their opportunity costs.

Question 3

Which of the following is NOT a characteristic of a competitive market

A)it has many buyers
B)it has many sellers
C)the products traded are identical
D)firms set the price (price makers)

Answer 3

firms set the price (price makers)

Question 4

Which of the following statements is true, regarding the revenues of a firm under perfect competition

A)the marginal revenue and the average revenue are equal to the price
B)the marginal revenue is greater than the average revenue
C)the marginal revenue is greater than the total revenue
D)the total revenue is less than the average revenue

Question 5

A firm under perfect competition will maximize profits when its

A)total revenue is equal to its total cost
B)marginal revenue is equal to its marginal cost
C)the difference between marginal revenue and marginal cost is the greatest
D)total cost is greater than total revenue

Question 6

The short-run supply curve of a firm in perfect competition is the segment of its:

A)marginal cost curve that lies above the minimum average total cost
B)marginal revenue curve that lies above the minimum average total cost
C)marginal cost curve that lies above the minimum average variable cost
D)marginal revenue curve that lies above the minimum average variable cost

Question 7

In perfect competition the shutdown point is defined by

A)where price = avc
B)where price = ac
C)where price = mc
D)when the firm starts to incur loss

Question 8

A monopoly is a ________

A)price taker
B)price accepter
C)price maker
D)price neutral

Question 9

A monopoly is a ________, therefore the demand curve it faces is ________

A)price taker, downward-sloping
B)price taker, horizontal
C)price setter, downward-sloping
D)price setter, horizontal

Question 10

As output increases in a monopoly, the firm's total revenue:

A)first increases and then decreases
B)first decreases and then increases
C)increases continuously
D)decreases continuously

Question 11

Marginal revenue in a monopoly is:

A)always greater than the price
B)always equal to the price
C)always smaller than the price
D)sometimes greater and sometimes smaller than the price

Question 12

Which of the following statements is true regarding a profit maximizing monopoly

A)it will cause a deadweight loss
B)it will produce less than perfect competition
C)it will sell at a higher price than perfect competition
D)all of the above

Question 13

In India, which law deals with monopolies

A)fera
B)fema
C)mrtp
D)mnrgea

Question 14

Which of the following is NOT a characteristic of monopolistic competition?

A)there are many sellers
B)there are many buyers
C)everybody is perfectly informed
D)the goods are identical

Question 15

The diagram depicting monopolistic competition in the short run:

A)is very similar to the short run monopoly diagram
B)is very similar to the short run perfect competition diagram
C)is very similar to the short run oligopoly diagram
D)is completely different to the diagrams of all the other types of markets

Question 16

If the Average Total Cost curve of a firm in monopolistic competition happens to be above the demand curve, it means:

A)the firm will have to sell a lot in order to make a profit
B)the firm will have to sell at a very high price in order to make a profit
C)other firms are performing better in the market than the firm depicted in the diagram
D)that firms in that industry will be incurring losses in the short run

Question 17

If firms in monopolistic competition are enjoying positive economic profits, in the long run

A)they will continue enjoying such profits, since new firms will be unable to enter the industry
B)consumers will cease wanting to buy such expensive goods and will switch to cheaper alternatives
C)this will attract new firms into the industry, causing prices to drop and profits to disappear
D)the government will have to step in and regulate the price

Question 18

Firms in monopolistic competition in long run equilibrium ________ than firms in perfect competition.

A)produce less
B)charge a lower price
C)have bigger profits
D)have lower costs

Question 19

In monopolistic competition in long run equilibrium, the price will be equal to:

A)the marginal cost
B)marginal revenue
C)average variable cost
D)average total cost

Question 20

A major critique of advertising is that

A)it provides information to consumers that they would be better off without
B)it manipulates people\s tastes, leading people to make bad choices
C)it promotes excessive competition among firms in the industry
D)it is usually linked to promotions, which undermine the market\s price

Question 21

A major argument in favour of advertising is that:

A)it provides information to consumers that allows them to make better choices
B)it helps people reaffirm their tastes and preferences
C)it reduces competition among firms in the industry, leading to lower prices
D)it is usually linked to promotions, which help lower the market\s price

Question 22

Branding can be good for society because:

A)it allows people to show off the branded goods they use or wear
B)it keeps generic goods from taking over the market
C)it provides useful information to consumers about the quality of branded goods
D)it helps firms enjoy higher prices and profits

Question 23

Which of the following statements is FALSE?

A)a monopoly is an industry with only one seller
B)an oligopoly is an industry with only a few sellers
C)perfect competition is an industry with many sellers
D)monopolistic competition is an industry with only a few sellers

Question 24

Monopsony is a market with

A)one buyer
B)one seller
C)many buyers
D)one buyer and one seller

Question 25

A bilateral monopoly is a market structure consisting of both a ______and a _____

A)oligopoly and monopoly
B)monopoly and monopsony
C)oligopoly and perfect competition
D)monopoly and perfect competition

Question 26

A ___________occurs in an industry where there is only one producer of a good and only one supplier.

A)bilateral monopoly
B)monopoly
C)monopsony
D)duopoly