Deck 5: Perfect Competition, Monopoly, and Economic Versus Normal Profit

Question 1

Perfect competition means that firms are

A)Price makers (firms set the price of the market)
B)Price takers (firms must accept the price of the market)
C)Powerful sellers
D)Unable to make normal profits

Answer 1

B

Question 2

Which of the following is not an assumption of perfect competition?

A)Branded products
B)Many buyers
C)Many sellers
D)Identical (or indistinguishable)products

Answer 2

A

Question 3

The typical firm in perfect competition is

A)An airline
B)A farm
C)A fast food restaurant chain
D)An electrical power company

Answer 3

B

Question 4

In Figure 5.6, what profit would the monopolist earn? In the figure above, a monopolist would charge which price?

A)zero profit.
B)a positive profit.
C)a loss equal to its total fixed cost.
D)a loss greater than its total fixed cost.

Question 5

Which of the following is not an assumption of perfect competition?

A)Freedom of entry
B)Powerful buyers
C)Freedom of exit
D)Identical (or indistinguishable)products

Question 6

When firms are in perfect competition the result is that firms charge a price that is always equal to its

A)Minimum ATC
B)Minimum AVC
C)MC
D)AFC

Question 7

For a market to be characterized by monopoly, there must be

A)a large number of firms with no one able to influence price.
B)freedom of entry and exit.
C)indistinguishable products being sold.
D)a single seller

Question 8

In Figure 5.1, what profit would a perfect competitor earn?

A)a profit of zero
B)a positive profit
C)a loss less than its total fixed cost
D)a loss greater than its total fixed cost

Question 9

For a market to be characterized by perfect competition, there must be

A)a large number of firms with no one able to influence price.
B)freedom of entry and exit.
C)indistinguishable products being sold.
D)all of the options are correct.

Question 10

The key difference(s)between perfect competition and monopolistic competition is

A)the products sold are slightly different in perfect competition.
B)the products sold are slightly different in monopolistic competition.
C)there is poor information about prices in perfect competition.
D)there is poor information about prices in monopolistic competition.

Question 11

In Figure 5.5, what profit would the monopolist earn?

A)zero profit, because it would shut down.
B)a positive profit.
C)a loss less than its total fixed cost.
D)a loss greater than its total fixed cost.

Question 12

A firm that has a branded product is

A)Likely in perfect competition
B)Not likely to be in perfect competition
C)Always in perfect competition
D)Always a price taker

Question 13

In Figure 5.4, a monopolist would charge which price? Figure 5.4

A)P₁
B)P₂
C)P₃
D)P₄

Question 14

For a market to be characterized by monopoly, there must be

A)a large number of firms with no one able to influence price.
B)barriers to entry and exit.
C)indistinguishable products being sold.
D)good information about sales and costs.

Question 15

In Figure 5.5, a monopolist would charge which price?

A)P₁
B)P₂
C)P₃
D)P₄

Question 16

In Figure 5.6, a monopolist would charge which price?

A)The monopolist would shutdown so no price would be charged.
B)P₂
C)P₃
D)P₄

Question 17

The key difference(s)between monopoly and oligopoly is

A)that there are two in oligopoly rather than one competitor in a monopoly.
B)there are no barriers to entry with oligopoly.
C)there must be product differences in oligopoly.
D)there are no differences between oligopoly and a monopoly.

Question 18

In Figure 5.3, what output would a perfect competitor produce? Figure 5.3

A)Q₁
B)Q₂
C)Q₃
D)0

Question 19

In Figure 5.2, what output would a perfect competitor produce? Figure 5.2

A)Q₁
B)Q₂
C)Q₃
D)0

Question 20

In Figure 5.1, what output would a perfect competitor produce?

A)Q₁
B)Q₂
C)Q₃
D)Q₄

Question 21

If you drive on a rural stretch of highway and come upon an intersection in which there is only one gas station and you know it to be the only one for 100 miles, it is a

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

Question 22

Suppose you can get the typical cable channels (ESPN, MTV, Bravo, etc.)from a cable company, from DIRECTV, or from DISH Network. This market would be described by

A)perfect competition.
B)healthy competition.
C)oligopoly.
D)monopoly.

Question 23

The breakfast cereals industry can be best modeled using the model of

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

Question 24

The local residential electrical power industry can be best modeled using the model of

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

Question 25

The soft drink (colas in particular)industry can be best modeled using the model of

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

Question 26

Suppose ten companies begin introducing new genetically engineered apples. Each has their own distinctive taste and brand name. This market would be described by

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

Question 27

The firm's supply curve is their

A)Marginal cost curve above the minimum of ATC
B)Marginal cost curve above the minimum of AVC
C)The upward sloping portion of the marginal cost curve
D)The entire marginal cost curve

Question 28

An industry in which there are many competitors with specific marketing niches is likely to be characterized by

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

Question 29

Agricultural Products can be modeled best using the model of

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

Question 30

The firm's supply curve is made up of the

A)Points where MC=MR
B)Points where MC=MR and they make a profit
C)Points where MC=MR and they make at least breakeven
D)Points where MC=MR above the minimum of AVC

Question 31

Suppose you can fly from your home city to New York but only one airline provides the service. This market would be described by

A)perfect competition.
B)healthy competition.
C)oligopoly.
D)monopoly.

Question 32

The personal computer operating systems industry can be best modeled using the model of

A)monopolistic competition.
B)perfect competition.
C)oligopoly.
D)Monopoly.

Question 33

Suppose you can fly from Charlotte to London but only two airlines provide the service. This market would be described by

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

Question 34

If you drive on a rural stretch of highway and come upon an intersection in which there are two gas stations and you know them to be the only ones for 100 miles, they are

A)monopolists.
B)monopolistic competitors.
C)perfect competitors.
D)oligopolists.

Question 35

Suppose you can fly from LA to New York and 15 separate airlines provide the service. This market would be described by

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

Question 36

An industry in which there are just a few large firms is likely to be characterized by

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

Question 37

Suppose you can get broadband only from your cable company or your phone company. This market would be described by

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

Question 38

There are hundreds of local water companies but economists insist that in each community they are __________ because consumers have no other choices in the local market in which they live.

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

Question 39

The fast food industry can be modeled best using the model of

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

Question 40

Lumber Products can be modeled best using the model of

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

Question 41

Local telephone service was once an area in which consumers had no choices. Many young people no longer use "land lines" preferring instead to use their cellular phones. This means that the market has moved toward

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

Question 42

There will be short-run pressure on the price to rise whenever

A)P>ATC.
B)P=ATC.
C)PD)P

Question 43

In Figure 5.7, assuming perfect competition and at MR₁ there will be

A)short run pressure on the price to rise.
B)long run pressure on the price to rise.
C)no pressure on the price to change.
D)short and long run pressure on the price to rise.

Question 44

If MR>MC then when an additional unit is sold the firm's

A)profit will be positive.
B)profit will be negative.
C)profit will increase.
D)profit will decrease.

Question 45

Whether a firm stays in business or shuts down depends heavily on the concept of

A)economic profit.
B)actual profit.
C)market share.
D)concentration ratios.

Question 46

Normal Profit is what a firm
A)usually makes.
B)needs to make to maintain the incentive to remain in the industry.
C)is zero in the long run.
D)

A)and b)

Question 47

An indicator of the degree of competition in an industry is the concentration ratio. It measures

A)the percentage of sales in the industry by the largest firms.
B)the percentage of profit in the industry by the smallest firms.
C)the sales in the industry as a percentage of all consumption in the U.S.
D)the profitability of the industry.

Question 48

Economic Profit exists whenever

A)A firm makes even one penny.
B)A firm makes more than its competitors.
C)A firm makes more than the minimum required to maintain the incentive to remain in the industry.
D)A firm makes enough to that it is required to pay taxes.

Question 49

In Figure 5.7, assuming perfect competition which price is associated with positive economic profit?

A)MR₁
B)MR₂
C)MR₃
D)MR₄

Question 50

In Figure 5.7, assuming perfect competition and at MR₄ there will be

A)short run pressure on the price to fall.
B)long run pressure on the price to fall.
C)no pressure on the price to change.
D)short and long run pressure on the price to fall.

Question 51

In a diagram of perfect competition, the marginal revenue line moves up and down when there is exit and entry, respectively, because

A)the market demand for the good rises and falls when there is exit and entry, respectively.
B)the market demand for the good rises and falls when there is entry and exit, respectively.
C)the market supply for the good rises and falls when there is exit and entry, respectively.
D)the market supply for the good rises and falls when there is entry and exit, respectively.

Question 52

In Figure 5.7, assuming perfect competition and at MR₂ there will be

A)short run pressure on the price to rise.
B)long run pressure on the price to rise.
C)no pressure on the price to change.
D)short and long run pressure on the price to rise.

Question 53

Economic theory would suggest that the profitability of an industry would be

A)directly related to the number of firms competing in the industry.
B)inversely related to the number of firms competing in the industry.
C)unrelated to the number of firms competing in the industry.
D)zero in the long run, regardless of market structure.

Question 54

Under perfect competition, the supply curve is

A)the marginal cost curve for all price quantity combinations.
B)the marginal cost curve, but only that portion that is downward sloping.
C)the marginal cost curve, but only that portion that is upward sloping.
D)the marginal cost curve, but only that portion that is above the minimum of average variable cost.

Question 55

The usefulness and relative simplicity of the supply and demand model is often used

A)because nearly every major industry in the U.S. is governed by perfect competition.
B)because nearly every major industry in the U.S. is governed by monopoly.
C)even though, strictly speaking, few industries in the U.S. are governed by perfect competition.
D)even though it has no connection to economic reality.

Question 56

In Figure 5.7, assuming perfect competition and at MR₃ there will be

A)short run pressure on the price to rise.
B)long run pressure on the price to rise.
C)no pressure on the price to change.
D)short and long run pressure on the price to rise.

Question 57

The assumption under perfect competition of a firm that has no market power means that

A)firms are free to leave the market any time and there is no power keeping them there.
B)the good one firm produces is very different than the good another produces.
C)the good one firm produces is exactly then same as the good another firm produces.
D)that no buyer will pay more for one firm's good than another's.

Question 58

In Figure 5.7, assuming perfect competition which price is associated with profit being exactly normal?

A)MR₁
B)MR₂
C)MR₃
D)MR₄

Question 59

In Figure 5.7, assuming perfect competition which price(s)is associated with a loss?

A)MR₁
B)MR₂
C)MR₃
D)MR₁ and MR₂

Question 60

The assumption under perfect competition of a "homogeneous product" means that

A)the good one firm produces is exactly the same as the good another firm produces.
B)the good one firm produces is very different than the good another produces.
C)that no firm can charge more than another for its product.
D)that no buyer will pay more for one firm's good than another's.

Question 61

The first firm in an industry

A)will always make an economic profit.
B)may make an economic profit.
C)will make a loss but want to stay in business.
D)will make a loss so large that it wants to shutdown.

Question 62

A reduction in the market price of the product is most likely to be required to enable

A)a single Northwestern logging company to sell a larger quantity of timber.
B)a single Midwestern grain farmer to sell a larger harvest of grain.
C)a single Pacific Coast fishing trawler to sell a larger quantity of tuna
D)Apple to sell more of its iPhones.

Question 63

Monopolistically competitive firms are

A)Price makers
B)Price takers
C)Price excluders
D)Price includes

Question 64

There will be short-run pressure on the price to fall whenever

A)P>ATC
B)P=ATC
C)PD)P

Question 65

Suppose a farmer earns a larger profit than the "normal profit" by producing a special type of vegetable that becomes popular

A)the farm's owners are likely to withdraw from the industry in order to retire early.
B)other farmers are likely to plant the same vegetable, pushing up the prevailing market price.
C)other farmers are likely to plant the same vegetable, pushing down the prevailing market price.
D)the firm will continue to earn its "normal profits" far into the future.

Question 66

There will be long-run pressure on the price to fall whenever

A)P>ATC
B)P=ATC
C)PD)P

Question 67

What moves when there is entry in monopolistic competition

A)The supply curve.
B)The demand curve only.
C)The demand curve and the marginal revenue curve.
D)The marginal revenue curve only.

Question 68

Very high four-firm concentration ratios characterize the

A)furniture industry.
B)beer industry.
C)clothing industry.
D)computer and peripherals industry.

Question 69

Microsoft is a dominant producer of operating system software for personal computers because

A)its Windows product was one of the first to appear in the market.
B)Linux and OS2 were unstable and vulnerable to frequent security failures.
C)the U.S. Justice Department has always encouraged Microsoft to dominate its market.
D)all of the above.

Question 70

Under oligopoly there are

A)identical products.
B)high barriers to entry.
C)low barriers to entry.
D)so many firms that no one can control the price.

Question 71

If a competitive firm routinely earns a larger profit than the "normal profit" for its industry

A)the firm's owners are likely to withdraw from the industry in order to retire early.
B)new firms are likely to enter the industry, pushing up the prevailing market price.
C)new firms are likely to enter the industry, depressing the prevailing market price.
D)the firm will continue to earn its "normal profits" far into the future.

Question 72

Under monopolistic competition there are

A)identical products.
B)high barriers to entry.
C)low barriers to entry.
D)so many firms that no one can control the price.

Question 73

There will be long-run pressure on the price to rise whenever

A)P>ATC
B)PC)PD)b)and c)

Question 74

Very low four-firm concentration ratios characterize the

A)breakfast cereal industry
B)beer industry
C)furniture industry
D)cellular telephone service industry

Question 75

If entry is completely free, the demand curve for the leading, profit-making monopolistic competitor will

A)Become steeper while moving to the right.
B)Move to the left until where MC=MR is where the ATC curve is tangent to the demand curve.
C)Move to the left until where MC=MR is where the AVC curve is tangent to the demand curve.
D)Move to the right until where MC=MR is where the ATC curve is tangent to the demand curve.

Question 76

When there are significant barriers to entry and there are few firms in the industry

A)economic profit will continue for the firms in the industry.
B)economic profit will go to zero.
C)normal profit will be garnered by the firms.
D)at least one will exit until the economic profit disappears.

Question 77

Suppose a farmer earns a larger profit than the "normal profit" by producing a special type of milk that becomes popular

A)the farm's owners are likely to withdraw from the industry in order to retire early.
B)other farmers are likely to produce the same milk, pushing up the prevailing market price.
C)other farmers are likely to produce the same milk, pushing down the prevailing market price.
D)the firm will continue to earn its "normal profits" far into the future.

Question 78

Midwestern grain farmers are characterized as "perfectly competitive" because they

A)pitch in energetically to help a neighbor raise a new barn.
B)must adjust the price of their product in order to increase the quantity that they sell.
C)are represented by very influential lobbyists in Washington.
D)can increase the quantity that they sell without affecting the market price.

Question 79

When a firm creates an industry

A)It is there's forever. No other firm can enter.
B)Depending on the ease of entry, the firm's economic profit is likely to diminish.
C)The firm's economic profit will rise because other firms will enter.
D)The firm's economic profit will stabilize.

Question 80

A reduction in the market price of the product is least likely to be required to enable

A)Microsoft to sell more copies of Windows.
B)a single Midwestern grain farmer to sell a larger harvest of grain.
C)Apple to sell more of its iPhones.
D)Verizon to increase its number of cellular telephone service subscribers.