Deck 10: Identifying Markets and Market Structures

Question 1

If the cross elasticity between tuna and chicken is -4.3, then we can conclude that these two goods are in the same market.

Answer 1

False

Question 2

A primary determinant of market structure is the number of producers in a market.

Answer 2

True

Question 3

A firm that has relatively high fixed-cost expenditures is likely to be a natural monopoly.

Answer 3

True

Question 4

Monopolistically competitive firms engage in advertising to increase market share and make demand more inelastic.

Question 5

For a market to be considered perfectly competitive, there should be a minimum of 1,000 firms.

Question 6

The number of tomato producers is of no consequence to people who enjoy eating tomatoes.

Question 7

Perfectly competitive producers do not need to consider how their output levels affect price.

Question 8

A monopolist has a strong incentive to advertise.

Question 9

Cross elasticity is higher the more perfect two goods are as substitutes.

Question 10

Two goods must have infinite cross elasticities to be considered as belonging to the same market.

Question 11

Market structure is determined mainly by the size of firms.

Question 12

For a monopoly, the entry of new firms is difficult, but not impossible.

Question 13

The goods produced by oligopolists are close substitutes.

Question 14

As new firms enter a market, the existing firms' demand curves will shift to the right.

Question 15

The purpose of advertising is to shift the firm's demand to the right.

Question 16

Typically, perfect competitors advertise their specific goods.

Question 17

Cross elasticity among goods in a perfectly competitive market is infinite.

Question 18

Barriers to entry into a monopolistically competitive industry are virtually impossible to overcome.

Question 19

There is only one firm in a monopoly.

Question 20

One very important feature of a monopoly is the size of the firm.

Question 21

Oligopolies are known for the mutual interdependence of firms.

Question 22

Two goods belonging to the same market have cross elasticities less than three.

Question 23

In perfect competition, entry and exit are difficult, but goods are homogeneous.

Question 24

In the real world, perfectly competitive markets are very few. Most markets are monopolistically competitive or oligopolistic.

Question 25

Brand loyalty is a phenomenon associated with perfectly competitive markets.

Question 26

Advertising is used by firms to increase their price elasticities of demand.

Question 27

As firms gain market share, industries become more competitive.

Question 28

When considering the definition of "monopolistic competition," it is wise to place emphasis upon the first word as it most nearly describes market performance within this industry structure.

Question 29

The relevant market for a firm consists only of firms operating within the same industry.

Question 30

Price elasticity of demand is a useful tool for classifying firms that exist within the same market.

Question 31

Market power refers to the ability of a firm to set its product price.

Question 32

Monopolies and oligopolies are similar in that both owe their existence to government intervention in the marketplace.

Question 33

-A firm operating as a natural monopoly would be most likely identified by which panel inExhibit J-1?

A) Panel 1
B) Panel 2
C) Panel 3
D) Panel 4
E) Panel 5

Question 34

An economic consultant recently reported to Sam Snerd that the cross-price elasticitybetween his product and another firm's scooters is 4.5. From this information Sam canconclude that

A) his firm's market is smaller
B) his firm is a monopolist
C) his firm's product has few substitutes
D) there is at least one other firm in his relevant market
E) scooters are complimentary to his firm's product

Question 35

The demand faced by firms within which of the following industries is most nearly horizontal?

A) steel
B) computer operating systems
C) vegetables
D) automobiles
E) books

Question 36

Which of the following characteristics should not be used to define markets?

A) product similarity
B) location
C) price elasticity
D) cross-price elasticity
E) degree of firm interdependence

Question 37

Firms in which type of market structure have the least incentive to advertise?

A) monopoly
B) oligopoly
C) monopolistic competition
D) perfect competition
E) all have an equal incentive

Question 38

Your textbook provides several examples of goods that belong to the same market. For two goods to be in the same market, they must

A) be produced by a monopoly
B) be substitutes
C) be complements
D) have a cross elasticity that is less than -3
E) have relatively high prices

Question 39

Which of the following characteristics does not contribute to the identification of specific market structures?

A) number of firms
B) ease or difficulty of entry
C) complementarity of goods
D) control over price
E) substitutability of goods

Question 40

The spectrum of market structures, aligned from the least to the greatest number of firms, spans

A) monopoly to duopoly
B) monopoly to oligopoly
C) monopoly to triopoly
D) monopoly to perfect competition
E) monopolistic competition to oligopoly

Question 41

Which of the following is an example of a natural monopoly?

A) a firm whose good has only one close substitute
B) a firm whose average total cost falls as output increases
C) a firm whose sales exceed the total of its competition
D) a firm that owns all of the raw materials it uses
E) a firm granted exclusive producing and marketing rights by the government

Question 42

Think cross elasticity. Suppose that the price of cod increases from $10 to $12. If perch and cod belong to the same market and consumers had demanded 20 perch before the increase in the price of cod, they will now demand

A) 34 perch
B) 8 perch
C) 24 perch
D) no more than 28 perch
E) at least 32 perch

Question 43

There are fewest problems in distinguishing between which two market structures?

A) oligopoly and monopolistic competition
B) monopolistic competition and perfect competition
C) monopoly and perfect competition
D) oligopoly and monopoly
E) oligopoly and perfect competition

Question 44

Most firms on the Fortune 500 list are

A) monopolies
B) monopolistically competitive
C) oligopolies
D) imperfectly competitive
E) perfectly competitive

Question 45

Entry into an oligopoly is

A) possible for anyone
B) time consuming
C) relatively easy
D) impossible
E) relatively difficult

Question 46

Which characteristics best describe oligopolies?

A) low fixed costs
B) mutual interdependence
C) very large firms
D) identical pricing
E) many firms

Question 47

Which characteristic does not help define a monopoly?

A) no close substitutes
B) price-making behavior
C) firm is the industry
D) mutual interdependence
E) firm's demand curve is market demand curve

Question 48

Natural monopolies result from the peculiar relationship between

A) government regulation and the ownership of scarce resources
B) threats to potential entrants and the price of the product
C) the size of market demand and the firm's cost structure
D) product differentiation and the ownership of patents
E) the firm's advertising campaigns and its labor policies

Question 49

Baking soda, a common household item, is produced from a mineral deposit called sod aash. There is only one soda ash deposit in the United States, and it is owned by the Leg and Plier Baking Soda Company. It is reasonable to describe this firm as a(n)

A) unbalanced oligopoly
B) balanced oligopoly
C) acquisitive oligopoly
D) natural monopoly
E) unnatural monopoly

Question 50

Suppose there are only two steel firms in the steel industry and their prices are equal to or very close to their ATCs. This circumstance suggests that

A) steel firms are not profit maximizing
B) steel has no close substitutes
C) the demand for steel is weak
D) quantity supplied is less than quantity demanded at the market prices
E) close substitutes are produced in other industries

Question 51

Suppose there is only one firm producing steel, one producing fiberglass, and one producing concrete. If steel and concrete are considered substitute goods in construction, while steel and fiberglass are considered substitute goods in auto production, there is no monopoly in the

A) steel market
B) fiberglass market
C) concrete market
D) construction market
E) boat market

Question 52

Coca-Cola has a secret formula that has never been copied. This is because Coca-Cola

A) is an unbalanced oligopoly
B) has a trademark that cannot be copied
C) has patent rights on the formula
D) has exclusive access to formula information
E) is a natural monopoly

Question 53

Monopoly rights provided by patents are awarded to

A) encourage profit making
B) guarantee competitive prices
C) encourage competition
D) the "first come, first served"
E) encourage research and development

Question 54

Andrew Carnegie, the first U.S. steel mogul, built his empire by

A) patenting each new type of steel
B) owning all of the U.S. iron ore deposits
C) being the most efficient, that is, having the lowest ATC
D) buying up his competitors
E) enlisting the protection of the government

Question 55

Clorox Bleach and generic brands have the exact same proportions of chlorine and other active ingredients. The reason that people continue to purchase Clorox at twice the price of the generic brand is the

A) price elasticity of demand classifies them as belonging to the same market
B) low cross elasticity between Clorox and the generic brand
C) high cross elasticity between Clorox and the generic brand
D) perceived differences on the part of consumers
E) income elasticity of demand is higher for the Clorox brand

Question 56

Some people refuse to buy Japanese cars because they believe it is anti-American. Others refuse to buy American cars because they believe that Japanese cars are superior. In this highly competitive market, the Mitsubishi Eclipse and Eagle Talon, which have identical engines, transmissions, bodies and paint, are a good example of

A) goods belonging to two separate markets
B) complementary goods
C) perfect competition
D) product differentiation
E) barriers to entry

Question 57

The reason why firms in perfect competition do not advertise is because

A) their demand curves are all downward sloping and if they sell more it would have to be at a lower price
B) they differentiate themselves, as with milk
C) they are typically small in size and cannot produce for a wider market
D) there is no entry into the industry
E) there is no product differentiation among the goods produced

Question 58

Suppose a monopolist chooses to advertise its good and its own demand curve shifts to the right, then we know that

A) the industry's demand curve shifts in precisely the same way
B) its competitors share some of the benefits of the advertising
C) the monopolist's cost curves will shift to accommodate the shift in demand
D) the price of substitute goods will fall
E) consumers are turned off by the advertising and buy less at every price

Question 59

In perfect competition, the buyers are usually looking for

A) easy entry
B) familiar brands
C) higher-quality goods
D) volume discounts
E) the lowest price

Question 60

In a perfectly competitive market, a firm that raises its price when its competitors do not

A) must have a differentiated product
B) must have relatively high costs and therefore must raise price to compensate
C) sells no goods
D) gains market share
E) will become a monopolist eventually

Question 61

If a shoe monopoly experiences an outward shift in its demand curve, the industry demand curve for shoes must have

A) shifted slightly less
B) been flat to begin with
C) shifted slightly more
D) shifted more quickly
E) made the exact same shift

Question 62

From what you know about the different kind of monopolies, which answer best describes the natural ones?

A) They only exist because the government has established patent laws.
B) They can produce services, but not goods.
C) The market supports only two or three firms.
D) Potential competitors are purchased before they can enter.
E) There is a declining ATC throughout the relevant range of production.

Question 63

The Bay Area in California is home to the Oakland Athletics and the San Francisco Giants. New York City is home to the Mets and Yankees. Most other cities only have one baseball team, if any at all. What is the best explanation for this phenomenon?

A) Most baseball fans, who are the demanders for baseball games, tend to live in New York and San Francisco.
B) Baseball team owners live in large cities, such as New York and San Francisco.
C) In most baseball cities-excluding New York, San Francisco, etc.-baseball teams are natural monopolies.
D) Only these four teams face downward-sloping demand curves.
E) Only these four teams have declining average total costs.

Question 64

Monopolies, whose market position is based on exclusive access to resources, eventually lose their monopoly power when there is

A) increasing brand loyalty on the part of consumers
B) an expiration in their patents
C) a development of new technologies
D) exclusive access to resources
E) a negative cross elasticity with other goods in the market

Question 65

Suppose Ford develops a technology enabling its full-size cars to get 150 miles per gallon. If it applies for a patent on that technology and is denied, Ford can expect to

A) still have a monopoly on that technology because Ford has monopoly power in the industry
B) sell that technology to a competitor who will reapply for the patent
C) be reimbursed for its investment in research by the government because it was the government that denied the patent in the first place
D) earn lower profit than they would with the patent
E) sell fewer cars in the short run, but more in the long run than its competition

Question 66

Oligopoly and monopolistic competition can be described as industries where firms

A) have high barriers to entry
B) produce identical goods
C) are located near each other
D) produce close substitutes
E) aspire to become perfect competitors

Question 67

Your textbook uses steel, concrete, and aluminum to describe the nature of competition between industries. What is important about this example is that it helps distinguish between

A) industries and markets
B) firms and industries
C) firms and markets
D) different construction technologies
E) factor markets for buildings

Question 68

As more firms enter the market,

A) individual firms produce more
B) advertising increases
C) demand curves become more elastic
D) demand curves become more inelastic
E) cross elasticities among the goods in the market decrease

Question 69

Aside from the simple pleasure of seeing your own good advertised on television or in the print media, one important reason that firms advertise is to

A) lower their costs
B) reduce product differentiation
C) shift their own demand curves to the right
D) decrease market share
E) shift their own demand curves to the left

Question 70

If advertising makes a firm's demand curve more inelastic, it is probably because

A) the advertising backfired
B) the goods advertised are no longer differentiated
C) competitors raised their prices in response to the firm's advertising
D) brand loyalty to the firm's good increased
E) quality changes make the good more attractive

Question 71

Technically speaking, a monopolist's share of industry demand is _________ to make it qualify as a monopoly.

A) 100 percent
B) 50 percent or more
C) 25 percent or more
D) 0 percent
E) there is no specific percentage

Question 72

In order to be a firm in monopolistic competition, it must have at least ___________market share

A) 50 percent
B) 10 percent
C) 5 percent
D) 1 percent
E) there is no specific percentage

Question 73

If there are 40 firms in a monopolistic competitive industry, the oldest (or first) firm will have ___________ market share to qualify as the oldest (or first) firm.

A) no less than 50 percent
B) no less than 10 percent
C) no more than 5 percent
D) no more than 1 percent
E) there is no specific percentage

Question 74

Recall from your reading of the text: Which game or sport contains the same strategic elements as the management of a firm in oligopoly?

A) darts
B) 50 meter hurdles
C) chess
D) speed skating
E) solitaire

Question 75

Cross elasticity of demand compares the change in the

A) price of one good that is generated by a change in the price of another good
B) quantity demanded of one good that is generated by a change in the price of another good
C) price of one good that is generated by a change in quantity demanded of another good
D) quantity demanded of one good that is generated by a change in the supply of another good
E) quantity demanded of one good that is generated by a change in quantity demanded of another good

Question 76

First and foremost, a market consists of

A) substitute goods
B) complementary goods
C) goods produced by the same firm
D) goods produced with the same inputs
E) goods that serve dissimilar purposes, which is why they are grouped

Question 77

If two foods are perfect substitutes, the cross elasticity between them is

A) zero
B) negative
C) between zero and one
D) infinite
E) there is no specific cross elasticity for perfect substitutes

Question 78

If two goods are strong substitutes, cross elasticity is

A) negative
B) positive
C) between zero and one
D) zero
E) one

Question 79

If cross elasticity between two goods is zero, then the goods are

A) perfect substitutes
B) perfect complements
C) good but not perfect substitutes
D) not considered to be substitutes
E) good but not perfect complements

Question 80

If cross elasticity between two goods is infinite, the goods are

A) perfect substitutes
B) perfect complements
C) good but not perfect substitutes
D) not considered to be substitutes
E) produced by the same firm