Deck 9: Market Structure and Long-Run Equilibrium

Question 1

These are characteristics of a competitive industry,except:

A)Many substitutes
B)No barriers to entry
C)Homogenous product
D)Little or no information on rivals' products

Answer 1

D

Question 2

A monopoly firm is a ______________ and faces a __________ sloping demand curve.

A)Price taker;horizontal
B)Price searcher;horizontal
C)Price searcher;downward
D)Price taker;downward

Answer 2

C

Question 3

The short run supply curve for a perfect competitive firm is

A)Marginal cost curve
B)Average revenue curve
C)Marginal revenue curve
D)Marginal cost curve above its average variable cost curve

Answer 3

D

Question 4

A firm sees its marginal revenue increase by $20 and marginal cost increase by $15 when it produces its 1000th product.This implies

A)the production of the 1000th unit of output increases the firm's profit by $5.
B)The firm is past its profit maximizing output
C)We cannot say much on the profitability of the firm
D)Producing the 1000th item will in fact decrease the overall firm's profits.

Question 5

A sudden rise in the market demand in a competitive industry leads to

A)A market equilibrium price higher than the original equilibrium in the short-run
B)A market equilibrium price equal to the original equilibrium in the long-run
C)Both a and b
D)None of the above

Question 6

Monopoly firms have a downward sloping curve in the short-run because

A)They have no close substitutes
B)There are no barriers to entry
C)They have no cost advantage over their rivals
D)None of the above

Question 7

How does Ebay differ from an economist's view of a perfect competitive market?

A)Ebay has few buyers whereas perfect competitive industry assumes many buyers
B)Ebay has few sellers whereas perfect competitive industry assumes many sellers
C)There is limited information in ebay whereas perfect competitive industry assumes full information for both buyers and sellers
D)There is no difference between these two markets.

Question 8

In a perfectly competitive market industry,firm's prices are equal to

A)Average revenue
B)Marginal revenue
C)Both a and b
D)None of the above

Question 9

Profits of a monopoly are driven to zero

A)In the long-run as all assets are mobile in the long-run
B)Immediately in the short-run as assets move from low-valued uses to high-valued uses instantly
C)In the long run because the demand curve becomes more inelastic
D)In the short run because the demand curve becomes more elastic

Question 10

In the long-run,a perfectly competitivel firm will achieve

A)Average rate of return
B)Above average profits
C)Losses
D)Economic Profits

Question 11

Which of the products below is towards the spectrum of perfectly competitive industry?

A)Nike shoes
B)Eggs
C)Purdue Chicken
D)Restaurants

Question 12

A perfectly competitive firm has

A)A perfectly elastic demand curve
B)A perfectly elastic supply curve
C)A downward sloping demand curve
D)A downward sloping supply curve

Question 13

If a firm in a perfectly competitive industry is experiencing average revenues greater than average costs,in the long-run

A)Some firms will leave the industry and price will rise
B)Some firms will enter the industry and price will rise
C)Some firms will leave the industry and price will fall
D)Some firms will enter the industry and price will fall

Question 14

A monopoly has

A)A perfectly elastic demand curve
B)A perfectly elastic supply curve
C)A downward sloping demand curve
D)A upward sloping demand curve

Question 15

A perfectly competitive industry has

A)A perfectly elastic demand curve
B)A perfectly elastic supply curve
C)A downward sloping demand curve
D)A downward sloping supply curve

Question 16

A market tends to be monopolistic if

A)The good has too many substitutes
B)The good has very few substitutes
C)The good has too many complements
D)The good has very few complements

Question 17

The owner of an Oakley store has a more__________ demand curve and the owner of a chicken farm has a more__________ demand curve.

A)inelastic;inelastic
B)elastic;inelastic
C)inelastic;elastic
D)elastic;elastic

Question 18

Lipitor,with few substitutes,should have an own-price elasticity of demand that is:

A)Relative elastic
B)Relatively inelastic
C)Perfectly inelastic
D)Perfectly elastic

Question 19

Which of the following cannot be classified as a market structure?

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

Question 20

A monopolist maximizes profit by producing

A)At MR= rising MC
B)At MR>MC
C)At P=MR
D)At MC=0

Question 21

You run a construction firm with unique capabilities.An architecture firm you have worked for in the past is working on a proposal for a new building that could earn them huge profits.They are considering one of two unique design concepts that either exploit your capabilities or those of another contractor with a different set of capabilities.They contact you to determine if you could actually get the job done and to get a quote to be included in their bid.The client makes a few changes that will have a small impact on your operations but awards the contract to the architect's plan that includes you.How does the awarding of the contract with changes affect how much your final fee for your services?

Question 22

In the above scenario,the profit of the company will

A)increase.
B)decrease.
C)remains the same.
D)may increase or decrease.

Question 23

In a competitive industry buffeted by demand supply shocks,prices increase and decrease,but economic profits tend to revert to zero.Hence,profits are exhibiting

A)Above-average return
B)Positive earnings
C)Mean reversion
D)None of the above

Question 24

A monopolist maximizes revenue at

A)At MR= MC
B)At MR>MC
C)At P=MR
D)At MR=0

Question 25

As a patent in a the pharmaceutical industry expires,the market for these drugs

A)Can now be categorized as a competitive market
B)Can now be categorized as a monopolistic market
C)Was and is still a monopolistic market
D)Was and is still a competitive market

Question 26

Mobil Energy Corp has a monopoly on gas sales in Texas.If the price of oil increases,the price of gas will

A)increase.
B)decrease.
C)remains the same.
D)may increase or decrease.

Question 27

A monopolist's profit maximizing price is $15.At MC=MR,the output is 100 units and the MC is $10.At this level of production,average total costs are $12.Monopolist's profits are

A)$300
B)$1500
C)$500
D)None of the above

Question 28

A sudden decrease in the market demand in a competitive industry leads to

A)A market equilibrium price higher than the original equilibrium in the short-run
B)A market equilibrium price equal to the original equilibrium in the long-run
C)Both a and b
D)None of the above

Question 29

A sudden decrease in the market demand in a competitive industry leads to

A)Losses in the short-run and average profits in the long-run
B)Above average profits in the short-run and average profits in the long-run
C)New firms being attracted to the industry
D)Demand creating supply

Question 30

When Clean City banned the air pollution that still plagues Smogville,over time,we would expect that:
e)The residents of Clean City are happy with the decision
f)The residents of Smogville are happy that they did not enact a similar law
g)House prices in Clean City will have risen
h)All of the above

Question 31

A car manufacturer produces three different versions of their compact car: base model,premium,and super-deluxe.A simplified profit/loss statement for the plant is below.Corporate overhead (rent,general and administrative expense,etc. )is allocated equally among the three product versions.At the end of the quarter,company managers evaluate the profitability of each version to see if any should be discontinued.What would you recommend?

Question 32

All these are characteristics of a monopoly except,

A)There is one seller of the product
B)Has few substitutes
C)Controls a large share of the market
D)Controls a small share of the market

Question 33

Each firm in the egg industry (competitive)produces 15 million eggs per year.Each egg has an average cost of $0.02 and they sell an egg for $0.06.The marginal cost of a string is

A)$0.02
B)$0.06
C)$0.04
D)not enough information provided.

Question 34

Based on the above scenario,is the industry in the long run equilibrium?

A)yes,because all firms are producing at P=MR=MC
B)no,because the price is still greater than the minimum average total cost.
C)cannot answer because need information on MR
D)cannot answer unless we see that the market lets some firms enter and/or some firms exit.

Question 35

A sudden increase in the market demand in a competitive industry leads to

A)Losses in the short-run and average profits in the long-run
B)Above average profits in the short-run and average profits in the long-run
C)New firms being attracted to the industry
D)Demand creating supply

Question 36

In the above scenario,the quantity of gas sold will

A)increase.
B)decrease.
C)remains the same.
D)may increase or decrease.