Deck 6: Market Structure

Question 1

While very few markets are "purely competitive" according to the strict economics definition,market analysts often use competition as

A)the benchmark from which to judge other market settings.
B)the standard of an inefficient market structure.
C)an example of a market with poor entry and exit conditions.
D)an example of a market with asymmetric information.

Answer 1

A

Question 2

For a perfectly or purely competitive firm,profit maximization occurs at an output level where

A)P = MC.
B)MC = ATC.
C)P = AVC.
D)P < AVC.

Answer 2

A

Question 3

Explain why OPEC cannot always maintain a high price of oil by restricting production?

Answer 3

OPEC members face a prisoner's dilemma problem.This cartel is unstable because each member country has an incentive to increase production slightly to gain more money at the higher world price of oil.The cartel fails because what is good for one country is good for every country.

Question 4

Duds is a new laundry detergent trying to break into the market.What might be its big problem?

A)The cost it incurs in getting all its employees insured
B)Entry costs in terms of getting shelf space in the retail stores
C)Its employment policy
D)Its outsourcing policy

Question 5

In this chapter,the discussion on competitive markets tells us that each firm's demand curve is horizontal.Is this not inconsistent with the industry's demand curve,which slopes downward?

Question 6

Always Round Tire is the only producer of tires for the new British import,the Maxi Copper.Demand for a set of four tires is P = 800 - 5Q while the cost incurred by the firm is MC = 15Q.What would be the monopoly price and quantity? What would happen to price and quantity if the market was perfectly competitive (assuming the same costs)?

Question 7

The importance of the marginal cost curve of a company is that it is also the

A)supply curve for its product.
B)demand curve for its product.
C)average cost curve for its product.
D)marginal revenue curve for its product.

Question 8

Economists tend to focus on one structural aspect of market organization that is more important than the others.It is

A)the number of buyers and sellers.
B)product homogeneity or differentiation.
C)the quality of market information.
D)the entry and exit conditions.

Question 9

Why would precommitment contracts,licenses,learning curve effects,and brand advantages protect an established corporation from new competitors?

Question 10

The market for microcomputers (PCs)is fairly competitive and the products are somewhat homogeneous.Over time,new firms have entered the market to make profit on new configurations of the microcomputer,and profits

A)have risen dramatically.
B)have stayed the same for most firms.
C)have become razor thin for many producers.
D)have not influenced the decisions of the firms

Question 11

An industry demand curve faced by firms in a duopoly is P = 69 - Q,where Q = Q₁ + Q₂.MC for each firm is 0.How many units should each firm produce? How much money will each firm make?

Question 12

If a competitive firm can sell its product at $1,600 per unit and the marginal cost of the firm is MC = 1,100 + 2Q,then the firm will produce

A)1,084 units.
B)250 units.
C)160 units.
D)1,100 units.

Question 13

The shutdown condition-the point where the company finds it no longer viable to produce and sell a product-for a competitive firm,in the short run,is where price is

A)less than marginal revenue.
B)less than short-run average total cost.
C)greater than marginal revenue.
D)less than average variable cost.

Question 14

Manifold Manufacturing,a large producer of motorcycle parts,is accused of monopolizing the market for a particular motorcycle part.Why would its legal defense team be so interested in a statistical estimate that the price elasticity of demand for its motorcycle part was 0.62?

Question 15

If a firm operating in a fairly competitive market earns a large economic profit,then,over time,

A)old firms will exit and prices will rise.
B)old firms will exit and prices will fall.
C)new firms will enter and prices will rise.
D)new firms will enter and prices will fall.

Question 16

There are four structural components to a perfectly competitive market.Which one of the four components is the most important to market operation and why?

Question 17

In a perfectly competitive market,the price faced by a firm is equal to its

A)average variable cost.
B)marginal revenue and average revenue.
C)total cost.
D)average revenue.

Question 18

In a purely competitive market,a company views its demand curve as

A)completely price insensitive.
B)horizontal (flat).
C)vertical.
D)convex.

Question 19

Recently American Airlines started charging $15 for each checked baggage.Why did the company not charge $15 to $20 more per ticket and quietly avoid this publicity?

Question 20

The market environment heavily influences corporate decision-making ability.Discuss the differences in executive decisions concerning pricing,product design,and advertising between a company that exists in a perfectly competitive market and a company in a monopolistically competitive market.

Question 21

If a firm with monopoly pricing power in the market faces a demand curve of P = 2,000 - 2Q and marginal cost of MC = 1,100 + 2Q,then the firm will produce at a price of

A)$16.
B)$1,400.
C)$1,700.
D)$1,600.

Question 22

Under what market structure do we have only one firm?

A)Perfect Competition
B)Monopoly
C)Monopolistic Competition
D)Oligopoly

Question 23

If a firm with monopoly pricing power in the market faces a demand curve of P = 2,000 - 2Q and marginal cost of MC = 1,100 + 2Q,then the firm will produce

A)542 units.
B)150 units.
C)200 units.
D)900 units.

Question 24

Under monopoly,there are

A)unexploited gains from trade.
B)many competitors.
C)advantages of heterogeneous products.
D)problems of easy entry.

Question 25

Under monopoly we have "unexploited gains from trade" because

A)if the firm were competitive it would have increased output in the long run.
B)if the firm were competitive it would have decreased output in the long run.
C)if the firm were competitive it would have not changed output in the long run.
D)the FCC is always trying to regulate it.

Question 26

In a monopolistically competitive market,the seller maximizes profits by

A)setting P = ATC.
B)setting MC = ATC.
C)setting price where MR = MC.
D)setting price where P = MC.

Question 27

Currently,a monopolist's MR = $5 and its MC = $10 and it serves 10 consumers.An 11^th consumer walks in.Should the company provide service to the additional customer?

A)Yes,MC is equal to the number of customers,so it should provide service to the additional customer.
B)Yes,MR < MC,so it should provide service to the additional customer.
C)No,MR is less than the number of customers,so it should not provide service to the additional customer.
D)No,MR < MC,so it should not provide service to the additional customer.

Question 28

Refer to Figure 6.1.The area RSTU represents

A)economic surplus.
B)the profit earned by the monopolist.
C)the loss incurred by the monopolist.
D)deadweight loss.

Question 29

Refer to Figure 6.1.The monopolist earns a profit equal to

A)$330.
B)$550.
C)$300.
D)$220.

Question 30

A new entrant can deter the brand advantage enjoyed by an existing firm by

A)offering their product at a comparatively lower price.
B)getting licenses and patents for their products.
C)offering government certified products.
D)investing in specific assets.

Question 31

Firm A has been dealing in baby food products for the past 10 years and enjoys a good market share.Suppose a new firm enters the market to capitalize on the increasing demand for such products.However,the products of the new firm fail to attract customers.The failure of the new firm is due to

A)the pioneering brand advantage of the incumbent.
B)the learning curve effect.
C)scale economies.
D)the specific assets owned by the incumbent.

Question 32

Under which market structure is a firm's MR curve horizontal?

A)Perfect Competition
B)Monopoly
C)Monopolistic Competition
D)Oligopoly

Question 33

A necessary condition for market power to exist for a particular company in a market is that

A)information must be understood by both buyers and sellers.
B)effective barriers to entry must exist.
C)the number of firms should be over 150.
D)consumers perceive all products as homogeneous.

Question 34

As a source of market power,a precommitment contract is an example of a(n)

A)newcomer advantage.
B)incumbent advantage.
C)incumbent reaction.
D)newcomer reaction.

Question 35

Sometimes an old company in an industry can build a large plant that has lower cost per unit than a potential entrant (newcomer)can duplicate.This is an example of a market

A)weakness based on cost.
B)power based on scale economies.
C)power based on specific assets.
D)weakness based on reputation deficiency.

Question 36

For any company operating in a marketplace,the firm attempts to maximize the value of the company's worth by setting the output where

A)costs are lowest.
B)P < AVC.
C)MR = MC.
D)AR = MC.

Question 37

Which of the following is the most important factor influencing the decision of a firm to enter a new market?

A)The effect of the firm's entry on product prices
B)The effect of the firm's entry on the interest rate
C)The prevailing tax rate
D)The type of government in power

Question 38

A monopolist's demand curve is P = 10 - 2Q.Thus,the MR is

A)5 - 2Q.
B)10 - Q.
C)10 - 4Q.
D)5 - Q.

Question 39

Elmer's Glue has captured the market for school glue.It is preferred by both students and parents alike.It takes very little capitalization to enter the market,but nobody succeeds in doing so.The glue clearly needs no patents or secret formulas.This type of market is called a(n)

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

Question 40

Currently,a monopolist's MR = $10 and its MC = $5 and it serves 10 consumers.An 11^th consumer walks in.Should the company provide service to the additional customer?

A)Yes,MR > MC,so it should provide service to the additional customer.
B)Yes,MR is equal to the number of customers,so it should provide service to the additional customer.
C)No,MR > MC,so it should not provide service to the additional customer.
D)No,MC is less than the number of customers,so it should not provide service to the additional customer.

Question 41

The problem of the cartel points out that

A)the interests of consumers and duopolists are the same.
B)the interests of consumers and duopolists conflict.
C)the interests of consumers and duopolists are the same in pricing,but conflict in output management.
D)the interests of consumers and duopolists are the same in output management,but conflict in pricing.

Question 42

In a monopolistically competitive market,the advantage that a seller has over competitors or newcomers is

A)the consumer preference for its brand.
B)the high price elasticity of demand for its product.
C)the high price elasticity of supply for its product.
D)the licenses or patents it has received.

Question 43

Under what market structure do we have strategic play?

A)Perfect Competition
B)Monopoly
C)Monopolistic Competition
D)Oligopoly

Question 44

A market where a few firms produce most of the output is called a(n)

A)oligopolistic market.
B)monopolistically competitive market.
C)perfectly competitive market.
D)monopolistic market.

Question 45

Under what market structure do we have products like toothpaste,airlines,fast food,and shampoos?

A)Perfect competition
B)Monopoly
C)Monopolistic competition
D)Oligopoly