Deck 6: Competition

Question 1

If Pepsi and Coke are the only two soft drink producers,they could be considered:

A) A duopoly.
B) A monopoly.
C) An oligopoly.
D) Perfectly competitive firms.

Answer 1

A

Question 2

If a firm can change market prices by altering its output then it:

A) Has market power.
B) Is a price taker.
C) Faces a horizontal demand curve.
D) Is a competitive firm.

Answer 2

A

Question 3

An individual competitive firm:

A) Has a large advertising budget.
B) Produces a small portion of output relative to the market.
C) Can alter the market price of the good(s)it produces.
D) Can raise its price to increase profit.

Answer 3

B

Question 4

Which of the following is not an example of monopolistic competition?

A) Lettuce farmers
B) Fast-food restaurants
C) Convenience stores
D) Gasoline stations

Question 5

Which of the following is an example of perfect competition?

A) One large firm supplies the entire product to the market
B) Two firms supply the entire market and compete with each other for customers
C) Many small firms all produce the same good
D) Many firms supply the same product essentially,but each has significant brand loyalty

Question 6

Which of the following is true concerning a monopoly?

A) A single consumer can impact the market price
B) The firm is a price taker
C) The firm has significant market power
D) Many small firms sell the same good

Question 7

Which of the following is an example of a monopoly?

A) One large firm supplies the entire product to the market
B) One firm supplies 60 percent of the product to the market and there are two other rival firms
C) Many firms supply the same product essentially,but each has significant brand loyalty
D) A few large firms supply the entire product to the market

Question 8

Market structure is determined by:

A) The equilibrium price in a specific market.
B) The level of government regulation in a specific market.
C) Whether or not a firm is able to alter its output.
D) The number and relative size of firms in an industry.

Question 9

Which of the following is not characteristic of a perfectly competitive market?

A) Firms are price takers
B) Brand loyalty
C) Low barriers to entry
D) Many firms

Question 10

Competitive firms cannot individually affect market price because:

A) There is an infinite demand for their goods.
B) The market demand curve is flat or horizontal.
C) Their individual production is insignificant relative to the production of the industry.
D) The government exercises control over the market power of competitive firms.

Question 11

An industry in which many firms produce similar products but each firm has significant brand loyalty is known as:

A) Perfect competition.
B) A monopoly.
C) Monopolistic competition.
D) An oligopoly.

Question 12

Market power:

A) Is the same for all market structures.
B) Means that a firm is a price taker,not a price setter.
C) Is the ability to alter the market price of a good or service.
D) Only exists for a monopoly.

Question 13

The number and relative size of firms in an industry is the definition of:

A) Competitive firm.
B) Competitive market.
C) Market structure.
D) Monopoly.

Question 14

An industry in which a few large firms supply most or all of a product is known as:

A) Perfect competition.
B) A monopoly.
C) Monopolistic competition.
D) An oligopoly.

Question 15

A perfectly competitive firm:

A) Can sell all of its output at the prevailing price.
B) Has some market power.
C) Can sell some output at a price above the market price.
D) Can sell more output only if it reduces its price.

Question 16

An industry in which only two firms compete to supply a particular product is:

A) A duopoly.
B) A monopoly.
C) Monopolistic competition.
D) An oligopoly.

Question 17

In a perfectly competitive market:

A) A single firm may dominate the supply side of the market.
B) A single consumer can impact the market price.
C) No seller has market power.
D) The buyers with the most money have the most market power.

Question 18

Which list has market structures in the correct order from the most to the least market power?

A) Perfect competition,oligopoly,monopolistic competition,monopoly
B) Monopoly,monopolistic competition,oligopoly,perfect competition
C) Monopoly,oligopoly,monopolistic competition,perfect competition
D) Oligopoly,perfect competition,monopolistic competition,monopoly

Question 19

Which of the following is an example of monopolistic competition?

A) One large firm supplies the entire market
B) One firm supplies 60 percent of the product to the market and there are three other rival firms
C) Many firms supply similar products,each with some consumers who show significant brand loyalty
D) Two firms supply the entire market

Question 20

If there are only four companies that produce tennis balls,the market could be considered:

A) A duopoly.
B) A monopoly.
C) An oligopoly.
D) Perfectly competitive.

Question 21

Which of the following is involved in a competitive firm's short-run production decision?

A) Deciding whether to build an additional factory or not
B) Choosing a rate of output using the existing plant and equipment
C) Changing the scale of operations
D) Deciding what price to charge for its product

Question 22

In making a production decision,a business owner:

A) Decides whether to enter or exit the market.
B) Makes a long-run decision about output and revenues.
C) Decides whether to buy or lease new plant and equipment.
D) Decides the short-run rate of output.

Question 23

Which of the following is characteristic of a perfectly competitive market?

A) Firms are price setters
B) A few firms dominate the market
C) There are low barriers to entry
D) The market demand curve is flat

Question 24

Which of the following is the best example of a perfectly competitive market?

A) The automobile industry.
B) The soft drink industry.
C) Dairy farming.
D) Fast-food restaurants.

Question 25

The equilibrium price for a perfectly competitive firm always occurs:

A) Where price equals minimum average total cost.
B) At the intersection of market supply and market demand.
C) Where a firm's marginal cost equals total revenue.
D) At the point where profit is maximizeD.

Question 26

If a perfectly competitive firm produces and sells more output,its _______ will definitely increase.

A) Total profit
B) Total revenue
C) Average total cost
D) Marginal revenue

Question 27

A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each.If the firm wants to sell one more carton of eggs,the firm:

A) Should raise its price above $1.25.
B) Cannot sell an additional carton at any price because there are other egg farmers in the market.
C) Must sell the carton for less than $1.25.
D) Should price the carton at $1.

Question 28

An individual wheat farmer has no market power because:

A) It can differentiate its wheat.
B) It can alter the market price.
C) Its output is a large portion of the entire market.
D) It must accept the equilibrium market price.

Question 29

In which of the following industries is the firm referred to as a price taker?

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

Question 30

Which of the following is characteristic of perfectly competitive markets?

A) Differentiated products
B) A large number of firms
C) Price below marginal cost
D) Significant barriers to entry

Question 31

The price of a good multiplied by the quantity sold equals:

A) Total profit.
B) Total revenue.
C) Marginal revenue.
D) Marginal cost.

Question 32

The production decision is the:

A) Selection of the short-run rate of output.
B) Selection of the long-run rate of output.
C) Choice of whether to enter or exit the industry.
D) Choice of factory or plant size.

Question 33

Which of the following characterizes a perfectly competitive market?

A) A downward-sloping demand curve facing the firm.
B) A horizontal demand curve for the market.
C) A selling price at the market-established equilibrium price.
D) A few firms that compete by changing price.

Question 34

Suppose a perfectly competitive firm increases its output.In order to sell this additional output,the firm:

A) Should price it at the market price.
B) Should raise its price to sell the additional output.
C) Must lower its price to sell the additional output.
D) Will not be able to sell the additional output at any price because of the many competitive firms.

Question 35

A catfish farmer in a perfectly competitive market:

A) Is able to keep other potential catfish producers out of the market.
B) Might like to keep other potential catfish producers out of the market but cannot do so.
C) Will not care if more catfish producers enter the market.
D) Is powerless to alter his or her own rate of production.

Question 36

A flat or horizontal demand curve for a firm indicates that:

A) The firm has no market power.
B) The law of demand does not apply in the market.
C) Price equals average total cost.
D) The firm is a monopoly.

Question 37

If one perfectly competitive firm is the only one to raise its price above the market price,it will:

A) Sell some output,but less than previously.
B) Not sell any output.
C) Sell more output than previously.
D) Sell the same amount of output as previously.

Question 38

A perfectly competitive firm is a price taker because:

A) It has no control over the market price of its product.
B) It has market power.
C) Market demand is downward sloping.
D) Its products are differentiateD.

Question 39

Which of the following is the best example of a perfectly competitive market?

A) The breakfast cereal industry
B) The textbook industry
C) The plasma TV market
D) The apple market

Question 40

In the perfectly competitive catfish market,the market demand curve is:

A) Flat (horizontal).
B) The same as the demand curve faced by the firm.
C) Vertical.
D) Downward sloping.

Question 41

Economists assume that the principal motivation of producers is:

A) Profit.
B) Competition in society.
C) A sense of well-being.
D) Individual desires.

Question 42

If a perfectly competitive firm wanted to maximize its total revenues,it would produce:

A) The output where MC equals price.
B) As much output as it is capable of producing.
C) The output where the ATC curve is at a minimum.
D) The output where the marginal cost curve is at a minimum.

Question 43

Marginal cost is:

A) The change in total costs because of a one-unit increase in output.
B) Total cost divided by the rate of output.
C) Total revenue minus total cost.
D) The average profit divided by the quantity solD.

Question 44

If the market price was below the ATC and at the current firm's rate of production the MC was less than the market price an increase in output would:

A) cause economic profits to be positive.
B) cause economic profits to be zero.
C) increase profit but economic profits would still be negative.
D) increase profit and economic profits would be positive.

Question 45

A producer tries to maximize profits by operating at an output where:

A) MC equals price.
B) Price minus ATC is greatest.
C) MR is greater then MC.
D) the profit per unit is greatest.

Question 46

A profit-maximizing producer wants to produce where:

A) Profit per unit is maximized.
B) Average total cost is minimized.
C) Price equals marginal cost.
D) Price is greater than marginal cost.

Question 47

For a competitive firm,the marginal cost curve:

A) Is the short-run supply curve.
B) Shifts to the right when new firms enter the market.
C) Shifts upward when wages decrease.
D) Is the short-run demand curve.

Question 48

Profit per unit equals:

A) Price minus average total cost.
B) Average revenue divided by average total cost.
C) Total revenue minus total cost.
D) Total revenue minus variable cost divided by quantity.

Question 49

Marginal costs:

A) Are the additional costs incurred in producing one more unit of output.
B) Fall as the rate of output increases.
C) Are constant for a perfectly competitive firm.
D) Are equal to total costs divided by total output.

Question 50

The law of diminishing returns helps to explain why:

A) Marginal cost increases,in the short run,as more output is produced.
B) The demand curve for a competitive firm is perfectly elastic.
C) The total cost curve diminishes as long as output increases.
D) Marginal cost decreases as more output is produceD.

Question 51

If marginal cost equals price,then _____ is at a maximum.

A) Total cost
B) Profit
C) Total revenue
D) Marginal cost

Question 52

A profit-maximizing competitive firm wants to _____ the rate of output when price _____ marginal cost.

A) Expand;exceeds
B) Reduce;exceeds
C) Expand;is less than
D) Reduce;equals

Question 53

If the level of productivity increases,then:

A) The marginal cost curve shifts upward.
B) Market price increases.
C) The marginal cost curve shifts downward.
D) The firm will supply less output.

Question 54

The goal of most business firms is to:

A) Maximize total revenue.
B) Maximize total profit.
C) Maximize both total revenue and total profit at the same time.
D) Produce as much output as possible.

Question 55

A rightward shift in market supply curve could be caused by:

A) An improvement in technology.
B) An increase in the market price.
C) An increase in wages.
D) The expectation that the market price will fall in the future.

Question 56

If price equals ATC and equals MC then:

A) Producers will want to increase output.
B) New firms will enter the market.
C) Economic profits would be zero.
D) The firm would be operating at a loss.

Question 57

The ability and willingness to sell specific quantities of a good at alternative prices in a given period of time,ceteris paribus,defines:

A) Demand.
B) Equilibrium price.
C) Supply.
D) Economic profit.

Question 58

Total profit is equal to:

A) The difference between total revenue and total cost.
B) Average cost times quantity sold.
C) The difference between price and average total cost.
D) The difference between marginal revenue and marginal cost.

Question 59

Which of the following is not true for a competitive firm?

A) The marginal cost curve is the short-run supply curve.
B) The marginal cost curve is horizontal at the equilibrium price.
C) The marginal cost curve shifts downward when productivity increases.
D) The marginal cost curve shifts upward when wages increase.

Question 60

If price is greater than marginal cost,a competitive firm should increase output because additional units of output will:

A) Cause marginal costs to fall.
B) Add to the firm's profits (or reduce losses).
C) Add to the firm's fixed costs.
D) Cause price to rise.

Question 61

In a perfectly competitive industry,firms are likely to:

A) Exit when there are economic profits because they know the profits will not last.
B) Reduce the level of production when there are economic profits.
C) Enter when there are economic profits.
D) Enter when price is equal to the minimum average total cost.

Question 62

Ceteris paribus,if the cost of insecticide decreases for tomato farmers,in order to maximize profits tomato farmers should:

A) Increase price.
B) Produce the same level of output since price has not changed.
C) Increase output.
D) Decrease output.

Question 63

Economic profits disappear when:

A) Price is greater than marginal costs.
B) Price falls to the level of minimum average total cost.
C) Price is greater than average variable cost.
D) Firms exit an industry.

Question 64

In a competitive market,in the long run,economic profits will cause:

A) New firms to enter the market.
B) Existing firms to leave the market.
C) Supply to decrease.
D) Demand to decrease.

Question 65

In a competitive market with economic profits,equilibrium:

A) Price will rise as new firms enter the market.
B) Price will fall as new firms enter the market.
C) Quantity will fall as new firms enter the market.
D) Quantity will remain the same as new firms enter the market.

Question 66

The market supply curve is calculated by:

A) Summing the marginal cost curves of all firms.
B) Averaging the individual supply curves.
C) Summing the prices from individual supply curves.
D) Averaging the individual marginal cost curves below ATC.

Question 67

The segment of the firm's marginal cost curve that:

A) lies above the average total cost is its supply curve.
B) is rising is equal to rising marginal physical product.
C) lies above the market price is equal to per unit profit.
D) lies above the average variable cost is its supply curve.

Question 68

Equilibrium price refers to the:

A) Price at which most producers are willing to sell their product.
B) Price at which the quantity demanded of a good equals the quantity supplied.
C) Price that equals marginal cost.
D) Balance between what producers want to charge and what the government will allow.

Question 69

Which of the following is consistent with competitive long-run equilibrium?

A) Economic profits are maximized.
B) Average total costs of production are minimized.
C) Price equals the maximum of average total cost.
D) Marginal costs are minimizeD.

Question 70

In a competitive market where firms are earning economic profits,which of the following is likely as the industry moves toward long-run equilibrium?

A) A lower price and fewer firms.
B) A higher price and fewer firms.
C) A lower price and more firms.
D) A higher price and more firms.

Question 71

When a new firm enters a market,it:

A) Pushes the equilibrium price upward.
B) Reduces the profits of existing firms.
C) Shifts the market supply curve to the left.
D) Shifts the market demand curve to the left.

Question 72

Which of the following is a determinant of market supply but will not influence the marginal cost curve of an individual firm?

A) The price of factor inputs.
B) The number of firms in the market.
C) Improvements in technology.
D) The person's desires.

Question 73

Ceteris paribus,if the cost of paper increases for book publishers,in order to maximize profits,book publishers should:

A) Increase output.
B) Produce the same level of output since price has not changed.
C) Decrease price.
D) Decrease output.

Question 74

Assume that for an individual firm MC = AVC at $6 and MC = ATC = $10 and MC = price = $12,then the firm will be operating:

A) at a loss.
B) where economic profits are negative.
C) at a point where firms will leave the market.
D) where economic profits are positive.

Question 75

Market supply in a competitive market is determined by:

A) Income.
B) The number of buyers.
C) The cost of factor inputs.
D) Consumer preferences.

Question 76

In a perfectly competitive market with positive economic profits:

A) Firms will enter until accounting profits are zero.
B) Firms will enter until economic profits are zero.
C) Firms will exit until economic profits are zero.
D) No entry or exit will occur.

Question 77

In a long-run competitive market equilibrium:

A) Price equals the minimum of average total cost.
B) Price equals the maximum of average total cost.
C) Marginal cost equals the maximum of total revenue.
D) Marginal cost equals the minimum of total revenue.

Question 78

In long-run competitive market equilibrium,price equals _______ and economic profit is _______.

A) Minimum average variable cost;greater than zero
B) Minimum average total cost;zero
C) Maximum marginal cost;zero
D) Minimum fixed cost;greater than zero

Question 79

If the cost of production rises for all the firms in a perfectly competitive industry:

A) Each firm will supply less output at any given price.
B) Total revenue increases.
C) The marginal cost curve shifts downward.
D) Total profit increases.

Question 80

The location of the firm's product supply curve depends on:

A) The number of firms in the industry.
B) The market demand curve.
C) Technology.
D) The taste of the buyers.