Market Structure Economics Questions! Trivia Quiz

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Market Structure Economics Questions! Trivia Quiz - Quiz

Economics is a tough topic to learn about when you’re starting off, but when you begin to appreciate how we analyze the production, distribution, and consumption of goods and services, whether it’s on a wide or narrow scale, you’ll be able to get a much better sense of the market structure and how a country’s wealth and economy are measures. Think you know your stuff? Take the quiz!


Questions and Answers
  • 1. 

    Perfect competition is defined as market structure in which:

    • A.

      A: there are many small sellers.

    • B.

      B: the product is homogenous.

    • C.

      C: it is very easy for firms to enter or exit the market.

    • D.

      D: all of these.

    Correct Answer
    D. D: all of these.
    Explanation
    Perfect competition is a market structure characterized by the presence of many small sellers, homogeneous products, and ease of entry and exit for firms. In perfect competition, there are numerous sellers in the market, each offering identical products, which ensures that no single seller has control over the market price. Additionally, firms can easily enter or exit the market without facing significant barriers, allowing for free competition. Therefore, option D, which includes all of these characteristics, is the correct answer.

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  • 2. 

    Perfect competition is a market structure in which there is:

    • A.

      A: a contest among firms to provide good service after the sale.

    • B.

      B: competition in product quality.

    • C.

      C: rivalry in product design.

    • D.

      D: none of these.

    Correct Answer
    D. D: none of these.
    Explanation
    Perfect competition is a market structure in which there is no contest among firms to provide good service after the sale, no competition in product quality, and no rivalry in product design. In perfect competition, there are many buyers and sellers, homogeneous products, perfect information, no barriers to entry or exit, and price is determined by market forces. Therefore, the correct answer is D: none of these.

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  • 3. 

    Which of the following is true of a perfectly competitive firm?

    • A.

      A: The firm is a price maker.

    • B.

      B: If the firm wishes to maximize profits it will produce an output level in which total revenue equals total cost.

    • C.

      C: The firm will not earn an economics profit in the long run.

    • D.

      D: The firm's short-run supply curve is its MC curve below its AVE curve.

    Correct Answer
    C. C: The firm will not earn an economics profit in the long run.
    Explanation
    In a perfectly competitive market, there are many firms selling identical products, and there is free entry and exit for firms. This means that in the long run, new firms can enter the market if there are economic profits to be made, which increases competition and drives down prices. As a result, in the long run, a perfectly competitive firm will only earn normal profits, where total revenue equals total cost. Therefore, option C is true.

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  • 4. 

    A firm in a price-taker market:

    • A.

      A: must take the price that is determined in the market.

    • B.

      B: must reduce its price if it wants to sell larger quantity.

    • C.

      C: must be large relative to the total market.

    • D.

      D: can exert a major influence on the market price.

    Correct Answer
    A. A: must take the price that is determined in the market.
    Explanation
    In a price-taker market, firms have no control over the price of their product. They have to accept the market price as determined by the forces of supply and demand. This means that they cannot set a higher price to increase their profits or a lower price to attract more customers. Instead, they must simply accept the prevailing market price and adjust their quantity of production accordingly. Therefore, option A is the correct answer as it accurately reflects the behavior of a firm in a price-taker market.

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  • 5. 

    A firm that is a price taker can:

    • A.

      A: substantially change the market price of its product by changing its level of production.

    • B.

      B: sell all of its output at the market price.

    • C.

      C: sell some of its output at a price higher than the market price.

    • D.

      D: decide what price to charge for its product.

    Correct Answer
    B. B: sell all of its output at the market price.
    Explanation
    A firm that is a price taker can sell all of its output at the market price because it has no influence over the price. As a price taker, the firm must accept the prevailing market price and adjust its level of production accordingly. It cannot substantially change the market price by changing its production level, sell some of its output at a higher price than the market price, or decide what price to charge for its product.

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  • 6. 

    Which of the following best explains why a firm in a perfectly competitive market must take the price determined in the market?

    • A.

      A: The short-run average total costs of firms that are price takers will be constant.

    • B.

      B: If a price taker increased its price, consumers would buy from other suppliers.

    • C.

      C: Firms in a price-taker market will have to advertise in order to increase sales.

    • D.

      D: There are no good substitutes for the product supplied by a firm that is a price taker.

    Correct Answer
    B. B: If a price taker increased its price, consumers would buy from other suppliers.
    Explanation
    In a perfectly competitive market, firms are price takers, meaning they have no control over the price of their product. If a price taker were to increase its price, consumers would simply buy from other suppliers who offer the same product at a lower price. This is because in a perfectly competitive market, there are many sellers offering identical products, and consumers have perfect information about prices. Therefore, the firm must take the price determined in the market to remain competitive and attract customers.

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  • 7. 

    Because a competitive firm is a price taker, it faces a demand curve that is:

    • A.

      A: perfectly inelastic.

    • B.

      B: relatively inelastic.

    • C.

      C: relatively elastic.

    • D.

      D: perfectly elastic.

    Correct Answer
    D. D: perfectly elastic.
    Explanation
    A competitive firm is a price taker, meaning it has no control over the price of its product and must accept the market price. In this scenario, the firm's demand curve is perfectly elastic because it can sell any quantity of its product at the market price. If the firm were to increase its price even slightly, consumers would switch to buying from other firms, resulting in a loss of all sales. Therefore, the firm's demand curve is perfectly elastic, indicating that even a small change in price would cause the firm to lose all of its customers.

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  • 8. 

    Under perfect competition, a firm is a price taker because:

    • A.

      A: setting a price higher than the going price results in profits.

    • B.

      B: each firm's product is perceived as different.

    • C.

      C: each firm has a significant market share.

    • D.

      D: setting a price higher than the going price results in zero sales.

    Correct Answer
    D. D: setting a price higher than the going price results in zero sales.
    Explanation
    Under perfect competition, a firm is a price taker because setting a price higher than the going price results in zero sales. In a perfectly competitive market, there are many buyers and sellers, and each firm sells an identical product. As a result, buyers have many options and can easily switch to another seller if one firm raises its price. Therefore, a firm has no control over the market price and must accept the going price determined by the market. If a firm tries to set a higher price, buyers will simply choose a lower-priced alternative, resulting in zero sales for the firm.

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  • 9. 

    A perfectly competitive firm in the short-run can earn:

    • A.

      A: positive economic profits.

    • B.

      B: negative economic profits.

    • C.

      C: zero economic profits.

    • D.

      D: all of these are possible.

    Correct Answer
    D. D: all of these are possible.
    Explanation
    In the short-run, a perfectly competitive firm can earn positive economic profits if its revenue exceeds its total costs, negative economic profits if its total costs exceed its revenue, or zero economic profits if its revenue is equal to its total costs. This is because in a perfectly competitive market, firms can enter or exit the industry freely, causing prices to adjust until economic profits are driven to zero in the long-run. Therefore, all of these outcomes are possible for a perfectly competitive firm in the short-run.

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  • 10. 

    A perfectly competitive firm maximizes profits or minimizes losses in the short-run by producing at the output level at which:

    • A.

      A: marginal revenue equals marginal cost.

    • B.

      B: total revenue equals total cost.

    • C.

      C: total revenue is at a maximum.

    • D.

      D: none of these.

    Correct Answer
    A. A: marginal revenue equals marginal cost.
    Explanation
    A perfectly competitive firm maximizes profits or minimizes losses in the short-run by producing at the output level at which marginal revenue equals marginal cost. This is because in a perfectly competitive market, the firm is a price taker and cannot influence the price of its product. Therefore, the firm should produce at the level where the additional revenue gained from producing one more unit (marginal revenue) is equal to the additional cost incurred from producing one more unit (marginal cost). By doing so, the firm can maximize its profits or minimize its losses.

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  • 11. 

    In the short run, if a perfectly competitive firm is producing at a price below average total cost, its economic profit is:

    • A.

      A: positive.

    • B.

      B: zero.

    • C.

      C: negative.

    • D.

      D: normal.

    Correct Answer
    C. C: negative.
    Explanation
    In the short run, if a perfectly competitive firm is producing at a price below average total cost, it means that the firm is not covering all its costs. This implies that the firm is incurring losses and its economic profit is negative. The firm's revenue from selling its output is not enough to cover its production costs, resulting in a negative economic profit.

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  • 12. 

    In the short run, if a perfectly competitive firm is producing at a price above average total cost, its exonomic profit must be:

    • A.

      A: positive.

    • B.

      B: zero.

    • C.

      C: negative.

    • D.

      D: normal.

    Correct Answer
    A. A: positive.
    Explanation
    If a perfectly competitive firm is producing at a price above average total cost in the short run, it means that the firm is earning more revenue than it is incurring in costs. This indicates that the firm is making a profit, as its revenue exceeds its expenses. Therefore, the economic profit for the firm must be positive.

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  • 13. 

    A competivie firm maximizes its profits (or minimizes is losses) by producing the quantity where the market price equals the firm's:

    • A.

      A: marginal cost.

    • B.

      B: average cost.

    • C.

      C: average variable cost.

    • D.

      D: average fixed cost.

    Correct Answer
    A. A: marginal cost.
    Explanation
    A competitive firm maximizes its profits by producing the quantity where the market price equals the firm's marginal cost. This is because the marginal cost represents the additional cost incurred by the firm to produce one more unit of output. By producing up to the point where the market price equals the marginal cost, the firm ensures that the revenue from selling the additional unit is equal to the cost of producing it. This maximizes the firm's profits as it avoids producing units that would result in higher costs than the revenue generated from selling them.

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  • 14. 

    The point of maximum profit for a business firm is where:

    • A.

      A: P = AC.

    • B.

      B: TR = TC.

    • C.

      C: MR = AR.

    • D.

      D: MR = MC.

    • E.

      E: TR = MR.

    Correct Answer
    D. D: MR = MC.
    Explanation
    The correct answer is D: MR = MC. This is because the point of maximum profit for a business firm occurs where marginal revenue (MR) equals marginal cost (MC). At this point, the firm is producing an optimal level of output where the additional revenue gained from producing one more unit is equal to the additional cost incurred to produce that unit. This ensures that the firm is maximizing its profit by balancing the additional revenue and cost.

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  • 15. 

    Marginal revenue is the change in:

    • A.

      A: total profit brought about by selling one more unit of output.

    • B.

      B: Price brought about by selling one more unit of output.

    • C.

      C: Total revenue brought about by selling one more unit of output.

    • D.

      D: output brought about by a $1 change in product price.

    • E.

      E: Average revenue brought about by selling one more unit of output.

    Correct Answer
    C. C: Total revenue brought about by selling one more unit of output.
    Explanation
    The correct answer is C because marginal revenue refers to the additional revenue generated from selling one more unit of output. It measures the rate at which total revenue changes as a result of a change in output. Therefore, it is the change in total revenue brought about by selling one more unit of output.

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  • 16. 

    In Exibit 8-11, the profit-maximizing output level at the price of $8 is:

    • A.

      0

    • B.

      4

    • C.

      7

    • D.

      8

    • E.

      10

    Correct Answer
    E. 10
    Explanation
    The profit-maximizing output level is the quantity at which the marginal cost equals the marginal revenue. In Exhibit 8-11, the profit-maximizing output level occurs at a price of $8. Looking at the graph, we can see that at a price of $8, the quantity demanded is 10 units. Therefore, the profit-maximizing output level at the price of $8 is 10 units.

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  • 17. 

    As shown in Exhibit 8-12, suppose the firm's price is OB. The firm's total economic profit at this price is equal to the area of:

    • A.

      CJID

    • B.

      BFHD

    • C.

      AEXD

    • D.

      CGHD

    • E.

      Zero

    Correct Answer
    E. Zero
    Explanation
    At price OB, the firm's total economic profit is equal to zero. This is because economic profit is calculated by subtracting total cost from total revenue. If the total revenue equals total cost, then the economic profit will be zero. In this case, the area of any of the given options (CJID, BFHD, AEXD, CGHD) does not represent the firm's economic profit.

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  • 18. 

    Which of the following statements is true?

    • A.

      To maximize profits, a firm must maximize total revenue.

    • B.

      In long-run equilibrium, a competitive firm produces at the point of minimum average total cost.

    • C.

      In the short-run, a perfectly competitie firm produces where total cost is minimum.

    • D.

      In the short-run, a perfectly competitive firm will close down whenever price is less than average total cost.

    Correct Answer
    B. In long-run equilibrium, a competitive firm produces at the point of minimum average total cost.
    Explanation
    In the long-run equilibrium, a competitive firm produces at the point of minimum average total cost. This is because in the long run, firms have the flexibility to adjust their inputs and make changes to their production processes. As a result, they can optimize their costs and minimize average total cost by producing at the point where marginal cost equals average total cost. This allows the firm to maximize its profits by minimizing its costs while still producing the quantity demanded by the market.

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  • 19. 

    In long-run equilibrium, the typical perfectly competitive firm will:

    • A.

      Earn zero economic profit

    • B.

      Change plant size in the long run

    • C.

      Change output in the short run

    • D.

      Do any of these.

    Correct Answer
    A. Earn zero economic profit
    Explanation
    In long-run equilibrium, the typical perfectly competitive firm will earn zero economic profit. This is because in a perfectly competitive market, there are no barriers to entry or exit, and firms can freely enter or exit the market. As a result, if a firm is earning positive economic profit, new firms will enter the market, increasing competition and driving down prices until economic profit becomes zero. Similarly, if a firm is earning negative economic profit, firms will exit the market, reducing competition and allowing the remaining firms to earn zero economic profit. Therefore, in the long run, firms in a perfectly competitive market will earn zero economic profit.

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  • 20. 

    In long-run equilibrium for a perfectly competitive firm, price equals which of the following?

    • A.

      Economics of real cost

    • B.

      Maximum total revenue

    • C.

      Diseconomies of scale cost.

    • D.

      Minimum point on the long-run average cost curve.

    Correct Answer
    D. Minimum point on the long-run average cost curve.
    Explanation
    In the long-run equilibrium for a perfectly competitive firm, the price equals the minimum point on the long-run average cost curve. This is because in the long run, firms have the flexibility to adjust their inputs and production levels. As a result, they strive to minimize their average costs to maximize their profits. The minimum point on the long-run average cost curve represents the most efficient level of production where costs are minimized, and therefore, firms set their prices at this level to ensure competitiveness in the market.

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  • 21. 

    A monolpy is:

    • A.

      A seller of a highly advertised and differentiated product in a market with lower barriers to entry in the long run.

    • B.

      The only seller of a good for which there are no good substitutes in a market with high barriers to entry.

    • C.

      The only buyer of a unique raw material.

    • D.

      The producer of a product subsidized by the government.

    Correct Answer
    B. The only seller of a good for which there are no good substitutes in a market with high barriers to entry.
    Explanation
    A monopoly is the only seller of a good for which there are no good substitutes in a market with high barriers to entry. This means that there are no other companies or sellers offering the same product, and it is difficult for new companies to enter the market and compete. The presence of high barriers to entry prevents new competitors from easily entering the market, giving the monopoly a significant amount of control and power over pricing and supply of the good.

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  • 22. 

    A monopolist faces a downward-sloping demand curve because:

    • A.

      The demand for its product is inelastic.

    • B.

      The industry demand curve is horizontal.

    • C.

      Resource prices increase as the monopolist expands output.

    • D.

      The entire market demand curve is the monopolist's demand curve.

    Correct Answer
    D. The entire market demand curve is the monopolist's demand curve.
    Explanation
    The correct answer is that the entire market demand curve is the monopolist's demand curve. This is because a monopolist is the sole provider of a product or service in the market, so the demand for their product is determined by the entire market. Unlike in a competitive market where individual firms face a horizontal demand curve, a monopolist faces a downward-sloping demand curve as they have control over the quantity supplied and can set the price.

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  • 23. 

    Which of the following firms best fits the definition of a monopoly?

    • A.

      General Motors

    • B.

      Exxon Mobile

    • C.

      Local electic utility

    • D.

      AT&T

    Correct Answer
    C. Local electic utility
    Explanation
    A local electric utility best fits the definition of a monopoly because it is a single provider of electricity in a specific geographic area, with no or very limited competition. Monopolies have exclusive control over a product or service, allowing them to set prices and dictate terms without fear of competition. General Motors, Exxon Mobile, and AT&T are not monopolies as they operate in industries with multiple competitors.

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  • 24. 

    A natural monolpy is a market where:

    • A.

      A single firm has control over a vital natural resource.

    • B.

      Many smaller firms can produce the entire market output at the same per-unit cost as could one large firm.

    • C.

      A single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms.

    • D.

      Many smaller firms can produce the entire market output at a lower per-unit cost than could one large firm.

    Correct Answer
    C. A single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms.
    Explanation
    In a natural monopoly, a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms. This is because the large firm benefits from economies of scale, allowing it to spread its fixed costs over a larger output. As a result, the average cost per unit decreases as production increases. In contrast, smaller firms would have higher average costs due to their inability to achieve the same economies of scale. Therefore, the single large firm has a cost advantage over smaller firms in producing the entire market output.

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  • 25. 

    Which of the following is true under natural monopoly?

    • A.

      The marginal cost curve will be above the average cost curve

    • B.

      The monopolist will set price equal to marginal cost and will earn economic profits.

    • C.

      Economies of scale exist.

    • D.

      Output is produced under conditions of constant cost.

    Correct Answer
    C. Economies of scale exist.
    Explanation
    Economies of scale exist in a natural monopoly. This means that as the quantity of output increases, the average cost of production decreases. This is because natural monopolies have high fixed costs and low variable costs. As a result, the marginal cost curve will be below the average cost curve, allowing the monopolist to produce at a larger scale and benefit from lower costs. The monopolist may not necessarily set the price equal to marginal cost and earn economic profits, and output can be produced under conditions of constant cost or increasing cost depending on the specific circumstances.

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  • 26. 

    The demand curve any monopolist uses in making output decisions is:

    • A.

      The same as the demand curve facing a perfectly competitive firm.

    • B.

      Vertical, because there are no close substitutes for its product.

    • C.

      Horizontal, because there are no close substitutes for its product.

    • D.

      The same as the market demand curve.

    • E.

      Perfectly inelastic.

    Correct Answer
    D. The same as the market demand curve.
    Explanation
    The correct answer is "the same as the market demand curve." This is because a monopolist is the sole producer in the market and has control over the quantity supplied. Therefore, the monopolist's demand curve represents the entire market demand for the product.

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  • 27. 

    For a monopolist:

    • A.

      Price equals average total cost.

    • B.

      Price is above marginal revenue.

    • C.

      Marginal revenue equals zero.

    • D.

      Marginal cost equals zero.

    • E.

      Average total cost equals marginal cost.

    Correct Answer
    B. Price is above marginal revenue.
    Explanation
    A monopolist is a single seller in a market with no close substitutes. They have the power to set the price for their product. In order to maximize their profits, a monopolist will set their price above the marginal revenue. This is because the monopolist's marginal revenue is less than the price due to the downward sloping demand curve they face. By setting the price above marginal revenue, the monopolist can ensure that they are maximizing their profits.

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  • 28. 

    Graphically, the marginal revenue curve of a monopolist:

    • A.

      Will sometimes lie below the demand curve of the monopolist.

    • B.

      Will always lie below the demand curve of the monopolist.

    • C.

      Is the same as the demand curve of the monolpolist.

    • D.

      Wll equal -1 when the elasticity of demand is unitary.

    Correct Answer
    B. Will always lie below the demand curve of the monopolist.
    Explanation
    The marginal revenue curve of a monopolist will always lie below the demand curve of the monopolist. This is because the monopolist faces a downward-sloping demand curve, meaning that in order to sell more units of their product, they must lower the price. As a result, the marginal revenue earned from selling an additional unit of the product will be less than the price at which it is sold. Therefore, the marginal revenue curve will always be below the demand curve.

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  • 29. 

    Which of the following best explains why the monopolist's marginal revenue is less than the selling price?

    • A.

      To sell more units, the monopolist must reduce price on all units sold.

    • B.

      As the monopolist expands output, the average total cost will decline.

    • C.

      The monopolist charges each consumer the highest possible price.

    • D.

      When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist.

    Correct Answer
    A. To sell more units, the monopolist must reduce price on all units sold.
    Explanation
    The correct answer is "To sell more units, the monopolist must reduce price on all units sold." This is because as a monopolist, there are no close substitutes for their product in the market. Therefore, in order to increase sales, they have to lower the price for all units sold. This results in a decrease in marginal revenue, which is the additional revenue generated from selling one more unit of the product.

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  • 30. 

    A monopolist will maximize profits by:

    • A.

      Setting his price as high as possible.

    • B.

      Setting his price at the level that will maximize per-unit profits.

    • C.

      Producing the output where marginal revenue equals marginal cost.

    • D.

      Producing the output where price equals marginal cost.

    Correct Answer
    C. Producing the output where marginal revenue equals marginal cost.
    Explanation
    A monopolist will maximize profits by producing the output where marginal revenue equals marginal cost. This is because marginal revenue represents the additional revenue generated from selling one more unit of a product, while marginal cost represents the additional cost incurred from producing one more unit. By setting the output level where these two values are equal, the monopolist can ensure that the revenue gained from selling an additional unit is equal to the cost of producing that unit. This maximizes the monopolist's profits as it indicates the optimal level of production where the revenue gained exceeds the cost incurred.

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  • 31. 

    Which of the following statements best describes the price, output, and price conditions of monopoly?

    • A.

      Price will equal marginal cost at the profit-maximizing level of output and profits will be positive in the long-run.

    • B.

      Price will always equal average variable cost in the short-run and either profits or losses may result in the long run.

    • C.

      In the long-run, positive economic profit will be earned.

    • D.

      All of these are true.

    Correct Answer
    C. In the long-run, positive economic profit will be earned.
  • 32. 

    A monopoly:

    • A.

      Faces the market demand curve which is downward sloping.

    • B.

      Has a marginal revenue curve which slopes downward and lies below its demand curve.

    • C.

      Will maximize profits by producing an output level where MR = MC.

    • D.

      All of these.

    Correct Answer
    D. All of these.
    Explanation
    A monopoly faces the market demand curve which is downward sloping, meaning that as the price decreases, the quantity demanded increases. It also has a marginal revenue curve that slopes downward and lies below its demand curve because in order to sell more units, the monopoly must lower the price, resulting in lower revenue per unit. To maximize profits, a monopoly will produce an output level where marginal revenue (MR) equals marginal cost (MC), ensuring that the additional cost of producing an extra unit is equal to the additional revenue gained from selling that unit. Therefore, all of these statements are true for a monopoly.

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  • 33. 

    In Exhibit 9-3, how much vaccine should GeneTech produce to maximize its profits?

    • A.

      300 doses per hour.

    • B.

      400 doses per hour.

    • C.

      Between 400 and 500 doses per hour.

    • D.

      500 doses per hour.

    Correct Answer
    A. 300 doses per hour.
    Explanation
    The correct answer is 300 doses per hour. This can be determined by analyzing Exhibit 9-3, which likely provides information on the relationship between the production rate and GeneTech's profits. The maximum profit is achieved when the production rate is at 300 doses per hour, as producing more or less than this would result in a decrease in profits.

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  • 34. 

    As shown in Exhibit 9-3, in order to maximize profits, what price should GeneTech charge for its vaccines?

    • A.

      $20 per dose.

    • B.

      $25 per dose.

    • C.

      $35 per dose.

    • D.

      $50 per dose.

    Correct Answer
    C. $35 per dose.
    Explanation
    Based on the information provided in Exhibit 9-3, the price that GeneTech should charge for its vaccines in order to maximize profits is $35 per dose.

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  • 35. 

    Although a monopoly can charge any price it wishes, it chooses:

    • A.

      The highest price.

    • B.

      Price equal to marginal cost.

    • C.

      The price that maximizes profit.

    • D.

      Competitive prices.

    • E.

      A fair price.

    Correct Answer
    C. The price that maximizes profit.
    Explanation
    A monopoly chooses the price that maximizes profit because it aims to maximize its own profits by setting the price at a level where the marginal cost equals the marginal revenue. This allows the monopoly to maximize the difference between total revenue and total cost, resulting in the highest possible profit. By setting the price at this level, the monopoly can exploit its market power and increase its profits compared to other pricing strategies.

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  • 36. 

    The goal of any monopolist is to maximize:

    • A.

      Economic profits.

    • B.

      Normal profits.

    • C.

      Price.

    • D.

      Consumer welfare.

    • E.

      Output.

    Correct Answer
    A. Economic profits.
    Explanation
    A monopolist aims to maximize economic profits because they have the power to set prices and control the quantity of output in the market. By maximizing economic profits, the monopolist can ensure that their revenue exceeds their costs, leading to higher profitability. This is different from normal profits, which only cover the opportunity cost of the resources used in production. Price, consumer welfare, and output are important factors, but they are not the primary goal for a monopolist, as their main focus is on maximizing their own profits.

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  • 37. 

    Which of the following statements best describes the price, output, and profit conditions of monopoly?

    • A.

      Price will equal marginal cost at the profit-maximizing level of output and profits will be positive in the long run.

    • B.

      Price will always equal average variable cost in the short-run and either profits or losses may result in the long run.

    • C.

      In the long run, positive economic profits will be eliminated.

    • D.

      None of these.

    Correct Answer
    D. None of these.
    Explanation
    None of the given statements accurately describes the price, output, and profit conditions of a monopoly. In a monopoly, the price will generally be set above the marginal cost, allowing for positive economic profits in the long run. Additionally, the statement does not mention the relationship between price and average variable cost, which is a key factor in determining profitability in the short run. Therefore, none of the given statements can be considered as the best description of monopoly conditions.

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  • 38. 

    Which of the following is ture about a monopoly?

    • A.

      A monopoly charges a higher price and produces a lower output level than if the market were competitive.

    • B.

      A monopoly is guaranteed an economic profit.

    • C.

      A monopoly charges the highest possible price.

    • D.

      A monopoly will shut down whenever losses are incurred.

    • E.

      All of these.

    Correct Answer
    A. A monopoly charges a higher price and produces a lower output level than if the market were competitive.
    Explanation
    A monopoly charges a higher price and produces a lower output level than if the market were competitive because it has no competition. With no competitors, a monopoly can control the market and set prices at a level that maximizes its profits. Additionally, a monopoly has the ability to limit the quantity of goods or services it produces in order to maintain higher prices. This lack of competition and control over pricing and output levels allows a monopoly to charge higher prices and produce less output compared to a competitive market.

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  • 39. 

    Monopolists are criticized because they are inefficient. What is meant by this statment?

    • A.

      Monopolists charge too high a price.

    • B.

      Monopolists don't innovate enough to control pollution.

    • C.

      Monopolists produce a large quanitity of waste.

    • D.

      Monopolists usually don't produce at the minimum of the ATC

    • E.

      Monopolists could use their resources better elsewhere.

    Correct Answer
    D. Monopolists usually don't produce at the minimum of the ATC
    Explanation
    Monopolists usually don't produce at the minimum of the ATC means that monopolists do not operate at the most efficient level of production. They tend to produce at a quantity where their average total cost (ATC) is higher than it could be if they were producing at the minimum efficient scale. This inefficiency can result in higher prices for consumers and a misallocation of resources.

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  • 40. 

    The monopolist, unlike the perfectly competitive firm, can continue to earn an economic profit in the long run because of:

    • A.

      Collusive agreements with competitors.

    • B.

      Price leadership.

    • C.

      Cartels.

    • D.

      A dominant firm.

    • E.

      Extremely high barriers to entry.

    Correct Answer
    E. Extremely high barriers to entry.
    Explanation
    The monopolist can continue to earn an economic profit in the long run due to extremely high barriers to entry. These barriers make it difficult for new firms to enter the market and compete with the monopolist. As a result, the monopolist can maintain its market power and charge higher prices, leading to sustained economic profits. Collusive agreements, price leadership, cartels, and a dominant firm may also contribute to a monopolist's ability to earn profits, but the key factor here is the presence of high barriers to entry.

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  • 41. 

    Which of the following is characteristic of a monopolistisally competitive firm?

    • A.

      The firm faces an upward-sloping demand curve.

    • B.

      The firm faces an inelastic demand curve.

    • C.

      The firm faces a horizontal demand curve.

    • D.

      The firm produces a differentiated product.

    Correct Answer
    D. The firm produces a differentiated product.
    Explanation
    A monopolistically competitive firm produces a differentiated product, meaning that its product is unique or distinct in some way from the products of its competitors. This allows the firm to have some control over the price it charges for its product, as consumers may be willing to pay a premium for the unique features or qualities offered. In contrast, a firm facing an upward-sloping demand curve would have to lower its price to sell more units, indicating less control over pricing. A firm facing an inelastic demand curve would have relatively few close substitutes, while a firm facing a horizontal demand curve would be a perfect competitor.

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  • 42. 

    A profit-maximizing monopolixtically competitive firm will expand output to the point where:

    • A.

      Total revenue equals total cost.

    • B.

      Marginal revenue equals marginal cost.

    • C.

      Price equals average total cost.

    • D.

      Price equals marginal cost.

    Correct Answer
    B. Marginal revenue equals marginal cost.
    Explanation
    A profit-maximizing monopolistically competitive firm will expand output to the point where marginal revenue equals marginal cost. This is because marginal revenue represents the additional revenue gained from producing one more unit, while marginal cost represents the additional cost of producing one more unit. By expanding output until these two values are equal, the firm ensures that it is maximizing its profit. If marginal revenue is greater than marginal cost, producing more units will increase profit. Conversely, if marginal revenue is less than marginal cost, producing fewer units will increase profit.

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  • 43. 

    The monopolistic competition market structure is characterized by:

    • A.

      Few firms and similar products.

    • B.

      Many firms and differentiated products.

    • C.

      Many firms and a homogeneous product.

    • D.

      Few firms and a homogeneous product.

    Correct Answer
    B. Many firms and differentiated products.
    Explanation
    Monopolistic competition is a market structure where there are many firms and each firm produces a differentiated product. This means that each firm has some control over the price of its product due to product differentiation, but there are still many firms competing in the market. The presence of many firms ensures that there is competition, while the differentiation of products allows firms to have some market power. Therefore, the correct answer is many firms and differentiated products.

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  • 44. 

    Firms in a monopolistically competitive industry produce:

    • A.

      Homogeneous goods and services.

    • B.

      Differentiated products.

    • C.

      Competitive goods only

    • D.

      Consumption goods only.

    Correct Answer
    B. Differentiated products.
    Explanation
    In a monopolistically competitive industry, firms produce differentiated products. This means that each firm's product has unique characteristics or features that distinguish it from the products of other firms in the industry. This differentiation allows firms to have some degree of control over the price and quantity of their products, giving them a certain level of market power. Differentiation can be based on factors such as branding, quality, design, or customer service, among others. This product differentiation creates competition among firms based on the perceived differences in their products, rather than solely on price.

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  • 45. 

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

    • A.

      Wheat.

    • B.

      Automobiles.

    • C.

      Diamonds.

    • D.

      Retail sales.

    Correct Answer
    D. Retail sales.
    Explanation
    Retail sales is the best example of a monopolistically competitive market because it is characterized by a large number of sellers offering differentiated products. In this market structure, each seller has some control over the price of their product due to product differentiation, but there is also competition from other sellers offering similar products. This competition leads to non-price competition, such as advertising and marketing strategies, to attract customers. Wheat, automobiles, and diamonds do not fit the criteria of monopolistic competition as they either have a few dominant sellers (oligopoly) or are highly standardized products (perfect competition).

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  • 46. 

    In the long run, both monopolistic competition and perfect competition result in:

    • A.

      A wide variety of brand-name choices for consumers.

    • B.

      An efficient allocation of resources.

    • C.

      Zero economic profit for firms.

    • D.

      Excess capacity

    Correct Answer
    C. Zero economic profit for firms.
    Explanation
    Both monopolistic competition and perfect competition result in zero economic profit for firms in the long run. In perfect competition, firms compete with each other, driving prices down to the point where firms only make normal profits. In monopolistic competition, firms have some degree of market power due to product differentiation, but in the long run, new firms enter the market and erode any economic profit. As a result, both market structures lead to zero economic profit for firms.

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  • 47. 

    In the long run, monopolisticaly competitive firms have:

    • A.

      Excess capacity.

    • B.

      Positive profits.

    • C.

      Minimal average costs.

    • D.

      Homogeneous production.

    Correct Answer
    A. Excess capacity.
    Explanation
    Monopolistically competitive firms have excess capacity because they operate at a quantity level below the one that minimizes their average costs. This means that they are not producing at the most efficient scale, resulting in unused resources and excess capacity. This is due to the fact that firms in monopolistic competition differentiate their products and engage in non-price competition, which leads to a less efficient allocation of resources compared to perfect competition. As a result, monopolistically competitive firms have excess capacity in the long run.

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  • 48. 

    The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

    • A.

      Produce the ouput level at which price equals long-run marginal cost.

    • B.

      Operate at minimum long-run average cost.

    • C.

      Overutilize its insufficient capcity.

    • D.

      Produce the outpul level at which price equals long-run average cost.

    Correct Answer
    D. Produce the outpul level at which price equals long-run average cost.
    Explanation
    In monopolistic competition, firms have some degree of market power and can differentiate their products. In the long-run equilibrium, firms aim to maximize their profits. Producing at the output level where price equals long-run average cost allows the firm to minimize costs and maximize profits. This is because producing at this level ensures that the firm is operating at its most efficient scale, where average costs are minimized. Therefore, the firm will produce the output level at which price equals long-run average cost.

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  • 49. 

    A monopolistic competitive firm is inefficient because the firm:

    • A.

      Earns positive economic profit in the long run.

    • B.

      Is producing at an output corresponding to the condition that marginal cost equals price.

    • C.

      Is not maximizing its profit.

    • D.

      Produces an output where average total cost is not minimum.

    Correct Answer
    D. Produces an output where average total cost is not minimum.
    Explanation
    In a monopolistic competitive market, firms have some degree of market power and can set prices higher than marginal cost. This leads to a situation where the firm is not producing at the output level where marginal cost equals price. In a perfectly competitive market, firms produce at the minimum average total cost, but in monopolistic competition, firms have some control over price and may choose to produce at a higher level of output where average total cost is not minimized. This inefficiency is a characteristic of monopolistic competition and contributes to the firm not maximizing its profit.

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  • 50. 

    Which of the following statements best describes firms under monopolistic competition?

    • A.

      There is little price or quality competition.

    • B.

      The firms compete, using quality, location, advertising, and price.

    • C.

      Firms do not compete using advertising.

    • D.

      There is little competition between firms.

    Correct Answer
    B. The firms compete, using quality, location, advertising, and price.
    Explanation
    In monopolistic competition, firms compete by differentiating their products through factors like quality, location, advertising, and price. This means that each firm tries to make their product stand out from competitors' products by offering unique features, better quality, convenient location, attractive advertising, or competitive pricing. This competition helps firms attract customers and build brand loyalty. Unlike perfect competition, monopolistic competition allows firms to have some control over price and differentiate their products to gain a competitive edge.

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