Deck 7: Market Structure: Perfect Competition, Monopoly, and Monopolistic Competition

Question 1

A depreciation of the U.S. dollar relative to foreign currencies will make

A) foreign imports less expensive in the U.S.
B) U.S. exports less expensive in foreign countries.
C) the demand for U.S. exports decrease.
D) All of the above are correct.

Answer 1

U.S. exports less expensive in foreign countries.

Question 2

A monopolist produces 14,000 units of output and charges $14 per unit. Its marginal revenue is $8, its marginal cost is $7 and rising, its average total cost is $10, and its average variable cost is $9. The monopolist should

A) increase output, which will result in an increase in the firm's positive economic profit.
B) increase output, which will reduce the firm's economic losses.
C) shut down, which will reduce the firm's economic losses.
D) decrease output, which will result in an increase in the firm's positive economic profit.

Answer 2

increase output, which will result in an increase in the firm's positive economic profit.

Question 3

Which of the following is not a criticism of the theory of monopolistic competition?

A) It is difficult to define a monopolistically competitive market and to determine the firms and products that comprise it.
B) When product differentiation is slight, each firm's demand curve is nearly horizontal so the perfectly competitive solution provides an adequate approximation to the monopolistically competitive solution.
C) When there are strong brand preferences and few producers of many differentiated products, or when there are many producers but only a few compete as rivals for any given consumer, then the oligopoly solution provides an adequate approximation to the monopolistically competitive solution.
D) All of the above are correct.

Answer 3

All of the above are correct.

Question 4

Market structure refers to the competitive environment in which the buyers and sellers of a product operate.

Question 5

Economists define a market as a place where buyers go to purchase units of a commodity.

Question 6

A market structure is defined in terms of the number and sizes of buyers and sellers on a market, the type of product traded on the market, the mobility of resources, and the amount of knowledge economic agents have about market conditions.

Question 7

Firms that sell commodities on markets that are imperfectly competitive face downward-sloping demand curves.

Question 8

The combination of product homogeneity and perfect knowledge ensure that a single price will prevail on a perfectly competitive market.

Question 9

Product price on a competitive market is determined by the intersection of the market demand curve with the market supply curve.

Question 10

If a firm in a perfectly competitive industry charges a higher price than that charged by other firms in the industry it will be unable to sell any of its output.

Question 11

If profit maximizing firms in a perfectly competitive industry are producing 14,000 units per day, but can only sell 12,000 units per day at the current market price of $23, then the market equilibrium price must be greater than $23.

Question 12

If profit maximizing firms in a perfectly competitive industry will produce 14,000 units per day if the market price is $23 and consumers will purchase 14,000 units per day if the market price is $20, then the market equilibrium quantity must be greater than 14,000.

Question 13

The efficient market hypothesis asserts that the price of a share of a firm's stock reflects the value implied by available information about the profitability of the firm.

Question 14

The only choice available to a perfectly competitive firm that is producing efficiently is what price to charge in order to maximize profits.

Question 15

If a perfectly competitive firm is producing a level of output where its marginal cost is greater than market price, it should raise its price.

Question 16

If a perfectly competitive firm is producing a level of output where price is equal to marginal cost and greater than average variable cost, then it should cease production in the short run.

Question 17

The supply curve of a perfectly competitive firm is identical to the portion of its marginal cost curve that is above its average total cost curve.

Question 18

If a perfectly competitive firm is in long-run equilibrium, then market price is equal to short-run marginal cost, short-run average total cost, long-run marginal cost, and long-run average total cost.

Question 19

If more firms enter a perfectly competitive industry, market equilibrium price will increase.

Question 20

An increase the number of U.S. dollars required to purchase one British pound would be a depreciation of the U.S. dollar and an appreciation of the British pound.

Question 21

A natural monopoly is one that results from exclusive control of a crucial natural resource.

Question 22

All monopoly power that is based on barriers to entry is subject to decay in the long run except that based on government franchise.

Question 23

If a monopolist earns $5,000 when it sells 100 units of output and $5,025 when it sells 101 units of output, then the marginal revenue of the 101st unit is $25.

Question 24

In general, if a perfectly competitive industry is taken over by a monopolist, it will charge a lower price and produce a larger quantity of output.

Question 25

When compared to perfect competition, monopoly results in a deadweight loss.

Question 26

The difference between the total amount that consumers would be willing to pay for a given level of consumption and the amount that they actually have to pay is called consumers' surplus.

Question 27

If a firm is small, produces a differentiated good for which there are many close substitutes, and it is easy to enter and exit the industry, then the firm is a monopolistic competitor.

Question 28

If an imperfectly competitive firm has a linear demand curve, then its marginal revenue curve has the same price intercept as its demand curve.

Question 29

If an imperfectly competitive firm has a linear demand curve, then its marginal revenue curve has a quantity intercept that is half that of the demand curve.

Question 30

If a monopolistically competitive firm is in long-run equilibrium, then its short-run average total cost curve is tangent to its demand curve.

Question 31

A market that is monopolistically competitive will tend to have fewer firms than would be the case if the same market was perfectly competitive.

Question 32

Product variation is the result of quality control problems.

Question 33

Selling expenses include any marketing expenditures that are intended to increase the demand for a product.

Question 34

A firm should increase expenditures on marketing and product variation up to the point where an additional dollar spent generates a marginal revenue of no less than one dollar.

Question 35

One problem with the theory of monopolistic competition is that it is difficult to define a market and to identify the firms that comprise it.

Question 36

In most cases, a monopolistically competitive market can be adequately approximated by the perfectly competitive model or the oligopoly model.