MCQ Quiz on Market structure and competition

Monopoly is characterized by one seller. In a monopoly market structure, there is a single seller who has complete control over the supply of a particular product or service. This seller has the power to set prices and restrict competition, as there are no close substitutes available. This lack of competition allows the monopolistic seller to maximize profits and exert significant influence over the market.

Monopoly and monopolistic competition are different concepts in economics. Monopoly refers to a market structure where there is only one seller or producer of a product or service, giving them significant control over the market. On the other hand, monopolistic competition is a market structure where there are many sellers or producers offering similar but slightly differentiated products. In monopolistic competition, firms have some degree of control over the price they set due to product differentiation. Therefore, the correct answer is that monopoly and monopolistic competition are different from each other.

Both air pollution by factories and water pollution by factories are examples of externalities. Externalities refer to the costs or benefits that are imposed on third parties who are not directly involved in the production or consumption of a good or service. In this case, the factories are causing pollution, which has negative effects on the environment and the health of people living nearby. These negative effects are external costs that are not taken into account by the factories in their production decisions. Therefore, both options A and B are examples of externalities.

In a monopoly, there is only one seller in the market, which means there are significant barriers to entry for new firms. These barriers can include high start-up costs, legal restrictions, control over key resources, or strong brand loyalty. Therefore, entry into the market is not easy at all in a monopoly.

Oligopoly is a market structure characterized by a few large firms dominating the industry. These firms have significant market power and can influence prices and output levels. While there is some competition among the few firms, it is limited due to barriers to entry, such as high start-up costs or exclusive access to resources. This limited competition allows the firms to have some control over prices and to engage in strategic behavior, such as collusion or price leadership. Therefore, the correct answer is "A state of limited competition."

Competitive monopoly cannot be called a type of market structure because it is a contradictory term. A monopoly refers to a market structure where there is only one seller or producer, while competition implies the presence of multiple sellers. Therefore, a competitive monopoly does not exist as it combines elements from both monopolistic and competitive markets, which are fundamentally different.

A free rider refers to someone who benefits from a good or service without contributing to its cost or production. In this context, someone enjoying the benefit of a good without paying is an example of a free rider. This person is able to take advantage of the good without bearing any of the associated costs, which can create inefficiencies and unfairness in the system.

Both a natural-gas company and an electricity company can be considered good examples of monopolies in the market. A monopoly occurs when a single company or entity has exclusive control over the supply of a particular product or service. In the case of a natural-gas company and an electricity company, they often operate as regulated monopolies, meaning they are the sole providers of these essential utilities in a specific geographic area. This lack of competition allows them to have significant control over pricing and service provision, making them prime examples of monopolies in the market.

In perfect competition, there are no barriers to entry, meaning that sellers can easily enter and exit the market. However, the given statement suggests that sellers cannot enter the market easily, which implies that it is not a part of perfect competition. Therefore, the correct answer is "Sellers cannot enter the market easily."

Product differentiation refers to the strategy of creating a unique product or service that sets it apart from competitors in the market. This can be achieved through various means such as quality, design, features, or customer service. Unlike price competition, which focuses on offering lower prices, product differentiation aims to attract customers based on the perceived value and benefits of the product. It allows companies to build a strong brand image and customer loyalty, leading to a competitive advantage in the market.