Deck 13: Competition and Market Structures

Question 1

A market is composed of a group of firms:

A) that produce similar products.
B) in the same producing sector, but not the same industry.
C) that produce similar products and compete for the same buyers.
D) that produce their goods and services with the same factors of production.

Answer 1

that produce similar products and compete for the same buyers.

Question 2

Sellers are in the same market if they:

A) are in the same industry.
B) use workers that belong to the same labor union.
C) sell similar products and compete for the same buyers.
D) all of the above.

Answer 2

sell similar products and compete for the same buyers.

Question 3

Which of the following statements is FALSE?

A) Firms in the same market sell similar products.
B) Firms in the same market compete for the same group of buyers.
C) If firms are in the same industry, they must also be in the same market.
D) An industry is made up of a group of firms that produce similar products.

Answer 3

If firms are in the same industry, they must also be in the same market.

Question 4

The boundaries of a market are:

A) determined partly by geographic considerations.
B) determined partly by substitutability considerations.
C) not easily determined, and there is often disagreement as to what the exact boundaries are.
D) all of the above.

Question 5

Which of the following statements is FALSE?

A) The size of a market determines the competition sellers face.
B) The larger a market, the greater the competition among sellers in it.
C) The definition of a market is uncertain and debatable.
D) Once sellers get together, there is always firm agreement on the boundaries of a market.

Question 6

The main determinants of the boundaries of a market are whether:

A) sellers are domestic or foreign-owned corporations.
B) sellers are sole proprietorships, partnerships, or corporations.
C) buyers view the sellers' products as close substitutes for one another, and whether sellers compete for buyers in the same geographic area.
D) none of the above.

Question 7

Which of the following statements is true?

A) All firms in the same industry must also be in the same market.
B) The geographic boundaries of a market could be local, regional, national, or international.
C) The boundaries of a market are easily determined, and there is virtually no disagreement as to what those boundaries are.
D) All of the above.

Question 8

Generally, you would expect to find:

A) no controversy over the definition of the boundaries of a particular market.
B) the definition of the boundaries of a market to be important in antitrust cases involving monopolization.
C) an inverse relationship between the number of sellers in a market and the amount of competition in that market.
D) all of the above.

Question 9

The definition of the boundaries of a market can be extremely important in court cases involving:

A) usury laws.
B) antitrust laws.
C) product liability laws.
D) minimum wage laws.

Question 10

According to Application 13.1, "Defining the Boundaries of a Market: The NCAA Case,"the court:

A) ruled that college football is not subject to the antitrust laws.
B) concluded that if firms are in the same industry they must also be in the same market.
C) heard two definitions of the market: televised live college football, and all broadcast programming.
D) all of the above.

Question 11

Market structures are:

A) groupings of firms that use similar processes in creating products.
B) groupings of firms that compete in a limited geographic market.
C) a classification system for grouping goods and services and how they are distributed.
D) models of market situations for grouping sellers according to the degree of competition among them.

Question 12

The system of market models that classify firms according to number of competitors, product differentiation, and ease of entry into or exit from the market is:

A) market structures.
B) competitive structures.
C) business sector analysis.
D) the North American Industrial Classification System.

Question 13

Which of the following is NOT a feature used to distinguish among the four market models?

A) The number of sellers in the market.
B) Whether the sellers' products are identical or differentiated.
C) The ease or difficulty with which firms can enter or leave the market.
D) Whether the firms in the market are proprietorships, partnerships, or corporations.

Question 14

Which of the following would be willing to operate at a loss over the long run?

A) An oligopolist.
B) A pure monopolist.
C) A monopolistic competitor.
D) None of the above.

Question 15

Firm A is concerned about the reactions of buyers to the price it sets for its product. Firm B is concerned about the reactions of buyers and its few rivals to the price it sets for its product. Firm C has no control over the price at which its product is sold. Firms A, B, and C are, respectively:

A) a monopolistic competitor, an oligopolist, and a pure competitor.
B) an oligopolist, a monopolistic competitor, and a pure competitor.
C) a monopolistic competitor, a pure competitor, and an oligopolist.
D) a pure competitor, an oligopolist, and a monopolistic competitor.

Question 16

Which is the correct sequence if we are ranking market structures from that with the largest number of sellers to that with the smallest?

A) monopolistic competition, pure competition, monopoly and oligopoly.
B) monopoly, oligopoly, pure competition, and monopolistic competition.
C) oligopoly, monopoly, monopolistic competition, and pure competition.
D) pure competition, monopolistic competition, oligopoly, and monopoly.

Question 17

Which is the correct sequence if we are ranking market structures from that where a firm has most control over price to that where a firm has least control?

A) Monopoly, oligopoly, monopolistic competition, pure competition.
B) Monopolistic competition, monopoly, pure competition, oligopoly.
C) Pure competition, monopolistic competition, monopoly, oligopoly.
D) Oligopoly, monopoly, pure competition, monopolistic competition.

Question 18

In which of these markets would you expect to find product differentiation emphasized as a competitive strategy tool?

A) Oligopoly.
B) Monopoly.
C) Pure competition.
D) All of the above.

Question 19

Markets with a large number of sellers producing identical products, and that are easy to enter and exit are:

A) oligopolistic.
B) monopolized.
C) purely competitive.
D) monopolistically competitive.

Question 20

Which of the following is NOT a characteristic of the purely competitive market model?

A) Products are differentiated.
B) Entry into the market is easy.
C) There is no nonprice competition.
D) There is a very large number of independently acting sellers.

Question 21

Which of the following would most likely be sold by purely competitive sellers?

A) Wheat.
B) Computers.
C) Dental services.
D) Men's and women's clothing.

Question 22

Financial, legal, technical, and other factors that prevent firms from coming into a market to compete are called:

A) unconstitutional.
B) barriers to entry.
C) never a problem in markets where there are only a few sellers.
D) more likely to be found in purely competitive markets than in oligopolistic markets.

Question 23

Which of the following could NOT create a barrier to entry into a market?

A) Patents.
B) Legal restrictions.
C) High capital requirements.
D) All of the above could create a barrier to entry.

Question 24

Which of the following is NOT found in a purely competitive market?

A) Barriers to entry.
B) Identical products.
C) A large number of sellers.
D) A downward-sloping market demand curve for the product.

Question 25

An individual seller has no control over the price of its product in:

A) oligopoly.
B) pure competition.
C) monopolistic competition.
D) all of the above.

Question 26

An individual purely competitive seller has:

A) no control over the price of its product.
B) its control over its product's price decrease when new rivals enter its market.
C) more control over the price of its product than does a monopolistic competitor.
D) control over the price of its product only when there is a surplus of the product.

Question 27

An individual seller in a purely competitive market:

A) must be willing to accept a lower price for its product if it wants to increase its sales.
B) competes with a large number of other sellers who produce virtually identical products.
C) would be able to increase the price of its product by withholding some of its product from the market.
D) all of the above.

Question 28

The price a purely competitive seller can get for its product is determined by:

A) government regulators.
B) the forces of supply and demand in the market.
C) agreements made by sellers in trade association meetings.
D) the seller's bargaining power when dealing with potential buyers.

Question 29

An individual purely competitive seller can sell:

A) as much or as little of its product as it wishes at the going market price.
B) its product at more than the going market price, but it will not sell as much as it could at that price.
C) more of its product than it could sell at the going market price if it drops its price below that price.
D) all of the above.

Question 30

In pure competition, the market demand curve for a product:

A) and the demand curve for an individual seller's product are both horizontal.
B) and the demand curve for an individual seller's product are both downward sloping.
C) is downward sloping, but the demand curve for an individual seller's product is horizontal.
D) is horizontal, but the demand curve for an individual seller's product is downward sloping.

Question 31

Which of the following statements about a purely competitive market is FALSE?

A) An individual seller can sell as much or as little as it wants at the price set in the market.
B) The market demand curve and the demand curve for any individual sellers' product are both downward sloping.
C) When the equilibrium price in the market decreases, the demand curve for an individual seller's product shifts downward.
D) The entire production of any one firm represents "a drop in the bucket" when compared with total production in the market.

Question 32

A purely competitive seller's demand curve for its product is perfectly horizontal because:

A) there is no nonprice competition.
B) the market is difficult to enter and exit.
C) there are other sellers in the firm's market.
D) the firm has no control over the price it receives for its product.

Question 33

A decrease in the equilibrium price in a purely competitive market:

A) shifts the demand curve for the individual seller's product upward.
B) shifts the demand curve for the individual seller's product to the left.
C) means that each seller's average total cost curve automatically shifts downward.
D) could be caused by a decrease in market demand or an increase in market supply.

Question 34

If there is an increase in market supply and no change in market demand, the demand curve for an individual purely competitive seller's product will shift:

A) upward.
B) to the left.
C) downward.
D) to the right.

Question 35

An increase in the number of buyers in a purely competitive market would shift the market demand curve to the:

A) left, and an individual seller's demand curve upward.
B) right, and an individual seller's demand curve upward.
C) left, and an individual seller's demand curve downward.
D) right, and an individual seller's demand curve downward.

Question 36

The demand curve for an individual purely competitive seller's product would shift downward if there were an increase in the:

A) cost of producing the product.
B) number of buyers in the market.
C) number of sellers in the market.
D) popularity of the product among buyers.

Question 37

-Which of these figures illustrates the behavior of the demand curve for an individual pure competitor's product when there is an increase in market supply and no change in market demand?

A) Figure A.
B) Figure B.
C) Figure C.
D) Figure D.

Question 38

-Suppose a product sold in a purely competitive market becomes less popular with buyers. Which of these figures illustrates, respectively, the change in market demand, and change in demand for the individual seller's product that would result?

A) Figure A and Figure C.
B) Figure B and Figure D.
C) Figure C and Figure B.
D) Figure D and Figure A.

Question 39

-The graphs in Figure B and Figure C show, respectively, the effect on:

A) market demand and the demand for an individual seller's product of an increase in the popularity of the product.
B) market demand and the demand for an individual seller's product of an increase in the number of sellers in the market.
C) the demand for an individual seller's product and on market demand of an increase in the number of buyers in the market.
D) the demand for an individual seller's product and on market demand of an increase in the costs of production for the product.

Question 40

In Application 13.2, "The Farmer's Almanac: It's a Necessity,"

A) it was pointed out that the almanac gives farmers a sure way to predict where corn and wheat prices are headed.
B) farmers' decisions about selling their crops are complicated by weather, family necessities, foreign crops, and other factors.
C) supply and demand fluctuate less in the market for corn than for any other crop.
D) all of the above.

Question 41

If a purely competitive firm's demand curve lies below its average total cost curve, the firm is:

A) breaking even.
B) sustaining a loss.
C) operating in the long run.
D) earning an economic profit.

Question 42

If a purely competitive firm is just breaking even, its owner is:

A) earning no profit.
B) earning no normal profit.
C) earning no economic profit.
D) going out of business.

Question 43

If a purely competitive firm is earning an economic profit:

A) it is operating in the long run.
B) its price is greater than its average total cost.
C) it has found a way of raising its price by restricting its output.
D) all of the above.

Question 44

In which of the following market structures is nonprice competition NOT important?

A) Oligopoly.
B) Monopoly.
C) Pure competition.
D) Monopolistic competition.

Question 45

Individual purely competitive sellers:

A) engage in nonprice competition only when the government establishes price floors.
B) are able to increase their sales by differentiating their products through nonprice competition.
C) engage in nonprice competition because they have no control over the prices they receive for their products.
D) do not engage in nonprice competition because consumers cannot distinguish between their products and their rivals' products.

Question 46

A pure competitor can earn:

A) excess profit in the short run and the long run.
B) only normal profit in the short run and the long run.
C) excess profit in the short run, but only normal profit in the long run.
D) only normal profit in the short run, and excess profit in the long run.

Question 47

Over the long run, a purely competitive seller will:

A) sustain a loss.
B) earn a normal profit.
C) earn an economic profit.
D) either sustain a loss, earn a normal profit, or earn an economic profit.

Question 48

In pure competition over the long run:

A) product price is at its lowest possible level.
B) costs per unit are at their lowest possible level.
C) there is no economic, or excess, profit going to the sellers.
D) all of the above.

Question 49

Over the long run, purely competitive firms:

A) earn no normal profit for their owners.
B) produce at the lowest possible cost per unit.
C) charge a price below minimum average total cost.
D) all of the above.

Question 50

Pure competition over the long run is considered the ideal situation for the consumer because over the long run, purely competitive sellers:

A) earn no economic profit.
B) charge the lowest possible price.
C) produce their output at the lowest possible cost.
D) all of the above.

Question 51

In pure competition over the long run, entry of new firms into the market occurs if:

A) losses are incurred, and results in a lower market price.
B) losses are incurred, and results in a higher market price.
C) economic profits are earned, and results in a lower market price.
D) economic profits are earned, and results in a higher market price.

Question 52

If sellers in a purely competitive market are operating at a loss, then over the long run:

A) some sellers will leave the market and the remaining firms will eventually break even.
B) some sellers will leave the market, but the remaining firms will continue indefinitely to take a loss.
C) new sellers will enter the market and replace the failing firms, and the new sellers will earn excess profit.
D) the number of sellers in the market will remain the same, but there will be more buyers so that each firm can increase its sales.

Question 53

Which of the following statements about a purely competitive market where sellers are earning excess profit is FALSE?

A) Excess profit will disappear over the long run.
B) The market supply curve will shift to the right.
C) Entry of new sellers into the market will shift the demand curve for each individual seller's product upward.
D) Over the long run, the demand curve for each individual seller's product will just touch the minimum point on the firm's long-run average total cost curve.

Question 54

-The relationship between demand and average cost shown in this figure could be found in a purely competitive market in:

A) the short run but not the long run.
B) the long run but not the short run.
C) either the short run or the long run.
D) neither the short run nor the long run.

Question 55

-The price shown in this figure:

A) is the long-run price in the market.
B) is lower than the long-run price in the market.
C) is higher than the long-run price in the market.
D) could be lower than, equal to, or higher than the long-run price in the market.

Question 56

-The firm shown in this figure:

A) is operating in the short run.
B) should expect its average total cost curve to rise over the long run until its minimum point just touches the demand curve.
C) should expect sellers to leave the market over the long run because price is less than average total cost at very low and very high levels of output.
D) all of the above.

Question 57

Pure competition:

A) provides an ideal against which real world markets can be judged.
B) would lead to excess profits in the long run were it not for the antitrust laws.
C) is found mainly in industries, such as the telephone industry, where firms are highly regulated by the government.
D) does not serve consumers' interests as well as other market structures.

Question 58

The market structure that serves as the ideal against which the performance of firms in all other market structures is judged is:

A) oligopoly.
B) monopoly.
C) pure competition.
D) monopolistic competition.

Question 59

Markets with a large number of firms selling differentiated products, and where entry into and exit from the market are fairly easy, are:

A) oligopolies.
B) monopolies.
C) pure competitors.
D) monopolistic competitors.

Question 60

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

A) Products are differentiated.
B) Entry into the market is difficult.
C) There is a large number of sellers.
D) Sellers earn no excess profits over the long run.

Question 61

A market has a large number of sellers that produce differentiated products and have limited control over their prices. Entry into this market by new sellers is fairly easy. This market is:

A) an oligopoly.
B) monopolized.
C) purely competitive.
D) monopolistically competitive.

Question 62

Into which of the following markets is entry by new sellers easy?

A) Pure competition and oligopoly.
B) Oligopoly and monopolistic competition.
C) Monopolistic competition and monopoly.
D) Pure competition and monopolistic competition.

Question 63

A monopolistically competitive seller has:

A) no control over the price of its product.
B) some control over the price of its product because of product differentiation.
C) some control over the price of its product because of the small number of competitors it faces.
D) a great deal of control over the price of its product because of product differentiation and the small number of competitors it faces.

Question 64

A monopolistic competitor will lose some, but not all, of its buyers when it raises its price by a small amount. The ability to keep some buyers is mainly due to:

A) the antitrust laws.
B) product differentiation.
C) barriers to entry into the market.
D) the large number of sellers in a monopolistically competitive market.

Question 65

The demand curve for an individual seller in monopolistic competition is:

A) downward sloping.
B) perfectly horizontal.
C) perfectly vertical.
D) upward sloping.

Question 66

A seller in monopolistic competition would:

A) lose all of its buyers if it raised its price.
B) lose some, but not all, of its buyers if it raised its price.
C) never lower its price because it can sell as much as it wishes at the current price.
D) never lower its price because once the price is lowered it can never be raised again.

Question 67

The demand curve for an individual seller's product in monopolistic competition is:

A) downward sloping because of product differentiation.
B) horizontal because of the large number of sellers in the market.
C) upward sloping because buyers are willing to pay more for differentiated products.
D) perfectly vertical because sellers cannot easily change the amounts they produce.

Question 68

If an individual monopolistically competitive seller's demand curve lies above its average total cost curve, the firm is:

A) breaking even.
B) earning an economic profit.
C) earning only a normal profit.
D) covering its explicit costs but not its implicit costs.

Question 69

Which of the following is NOT an example of nonprice competition?

A) Building an outlet with easy access for potential buyers.
B) Redesigning a product's package to make it more attractive.
C) Buying ads that demonstrate the physical features of the product.
D) Buying ads that state the product is priced lower than rivals' products.

Question 70

Which of the following statements is true?

A) Nonprice competition can increase businesses' costs and can lead to higher prices for buyers.
B) Business firms are attracted to nonprice competition because it provides a way to increase product demand.
C) By highlighting differences and playing down similarities, nonprice competition helps an individual firm make its product appear unique.
D) All of the above.

Question 71

Which of the following statements about nonprice competition is true?

A) There is controversy over how much buyers benefit from nonprice competition.
B) Nonprice competition can benefit buyers by giving them a wider variety of products from which to choose.
C) Nonprice competition can hurt buyers by forcing them to pay higher prices than they would if products were not differentiated.
D) All of the above.

Question 72

In a monopolistically competitive market, a firm can have some control over the price of its product due to:

A) service.
B) location.
C) advertising.
D) all of the above.

Question 73

"Up for Debate: Does Nonprice Competition Waste Resources?" argues that

A) packaging contributes to a waste of resources.
B) nonprice competition has created a greater variety and number of choices in consumer products.
C) nonprice competition uses resources that could be put into better sustainability practices.
D) all of the above.

Question 74

In the long run, a firm in monopolistic competition will:

A) operate at a loss.
B) earn an economic profit.
C) just break even with a normal profit.
D) all of the above.

Question 75

Individual sellers cannot earn excess profit over the long run in:

A) oligopoly and monopoly.
B) any of the market structures.
C) monopolistic competition and monopoly.
D) pure competition and monopolistic competition.

Question 76

If monopolistically competitive firms are sustaining losses, then over the long run firms will:

A) exit the market, and losses will increase.
B) exit the market, and losses will decrease.
C) enter the market, and losses will increase.
D) enter the market, and losses will decrease.

Question 77

If monopolistically competitive firms are earning an economic profit, then over the long run firms will:

A) enter the market and the economic profit will be competed away.
B) enter the market, but the existing sellers will still be able to earn some economic profit.
C) not be able to enter the market, and existing sellers' abilities to earn economic profit will not be weakened.
D) leave the market because the economic profit will increase the intensity of competition, and with that, the risk of doing business.

Question 78

-This figure illustrates the expected long-run position of a:

A) oligopolist.
B) monopolist.
C) pure competitor.
D) monopolistic competitor.

Question 79

-The firm in this figure is operating in the long run. According to this figure, this firm is earning:

A) a loss, and will go out of business.
B) excess profit, and is operating less efficiently than it would if it were a pure competitor.
C) a normal profit, and is operating as efficiently as it would if it were a pure competitor.
D) a normal profit, and is operating less efficiently than it would if it were a pure competitor.

Question 80

In the long run, firms in purely competitive and monopolistically competitive markets will both:

A) earn a normal profit.
B) have no control over price.
C) operate at minimum average total cost.
D) all of the above.