Perfect Competition and Question Essay
Current Location Take Test: Chapter 15 & 16 Microeconomics . Content Assistive Technology Tips [opens in new window] InstructionsDescription Instructions Multiple Attempts This Test allows 2 attempts. This is attempt number 1. Force Completion This Test can be saved and resumed later. Question Completion Status: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 Question 1 Which of the following statements is correct? Answer a. Both a competitive firm and a monopolist are price makers. b.
A competitive firm is a price maker, whereas a monopolist is a price taker. c. Both a competitive firm and a monopolist are price takers. d. A competitive firm is a price taker, whereas a monopolist is a price maker. .2 points Question 2 A monopoly Answer a. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits. b. can set the price it charges for its output and earn unlimited profits. c. takes the market price as given and earns small but positive profits. d. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits. 2 points Question 3 Because a monopolist does not face competition from other firms, the outcome in a market with a monopoly Answer a. is often not in the best interest of society. b. is characterized by unlimited profits. c. does not illustrate profit maximization. d. would be improved if the government produced the product rather than a private firm. .2 points Question 4 Microsoft faces very little competition from other firms for its Windows software. Why isn’t the price of the software $1,000 per copy? Answer a. because the government would not allow such a high price b. ecause stockholders would not allow such a high price c. because the company would sell so few copies that they would earn higher profits by selling at a lower price d. All of the above are correct. .2 points Question 5 Which of the following is not a characteristic of a monopoly? Answer a. barriers to entry b. one seller c. one buyer d. a product without close substitutes .2 points Question 6 The fundamental source of monopoly power is Answer a. a product without close substitutes. b. barriers to entry. c. decreasing average total cost. d. profit. .2 points Question 7 A monopoly market is characterized by
Answer a. barriers to entry. b. many buyers and sellers. c. “natural” products. d. a Nash equilibrium. .2 points Question 8 The simplest way for a monopoly to arise is for a single firm to Answer a. own a key resource. b. decrease its price below its competitors’ prices. c. make pricing decisions jointly with other firms. d. decrease production to increase demand for its product. .2 points Question 9 Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has Answer a. less incentive to advertise than it would otherwise have. . less market power than it would otherwise have. c. more control over the price of diamonds than it would otherwise have. d. higher profits than it would otherwise have. .2 points Question 10 Which of the following would be most likely to have monopoly power? Answer a. a large department store b. a local cable TV provider c. a gas station d. a long-distance telephone service provider .2 points Question 11 Which of the following would be most likely to have monopoly power? Answer a. a national florist b. a local electrical cooperative c. an online bookstore d. a local restaurant .2 points Question 12
A firm that is the sole seller of a product without close substitutes is Answer a. an oligopolist. b. a monopolist. c. perfectly competitive. d. monopolistically competitive. .2 points Question 13 Which of the following statements is not correct? Answer a. Monopolists typically charge higher prices than competitive firms. b. Consumers will likely benefit in the form of lower prices from buying a product made by a natural monopoly than if the market were served by several firms. c. Consumers may benefit from monopolies if the firms invest their higher profits into something that benefits society such as medical research. . Monopolists typically produce larger quantities of output than competitive firms. .2 points Question 14 Which of the following is not an example of a barrier to entry? Answer a. A pharmaceutical company obtains a patent for a specific high blood pressure medication. b. Mighty Mitch’s Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world. c. An entrepreneur opens a popular new restaurant. d. A musician obtains a copyright for her original song. .2 points Question 15 Which of the following is not an example of a barrier to entry? Answer a.
A novelist obtains a copyright for her new book. b. A taxi cab driver in New York City obtains a license to legally provide transportation in New York City. c. Mighty Mitch’s Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world. d. A college student starts a part-time tutoring business. .2 points Question 16 Which of the following is an example of a barrier to entry? Answer a. Bev charges a lower price than her competitors for her desktop-publishing services. b. Debbie offers free samples of her chocolate chip cookies to attract new customers. . Rhianna obtains a copyright for a short story that she wrote and published. d. Dawn charges a higher price than her competitors for her landscape-architecture services. .2 points Question 17 A fundamental source of monopoly market power arises from Answer a. perfectly inelastic demand. b. availability of “free” natural resources, such as water or air. c. barriers to entry. d. perfectly elastic demand. .2 points Question 18 The fundamental cause of monopoly is Answer a. incompetent management in competitive firms. b. the zero-profit feature of long-run equilibrium in competitive markets. c. advertising. d. arriers to entry. .2 points Question 19 Sizable economic profits can persist over time under monopoly if the monopolist Answer a. operates as a price taker rather than a price maker.
b. earns revenues that exceed variable costs. c. produces that output where average total cost is at a maximum. d. is protected by barriers to entry. .2 points Question 20 Patent and copyright laws are major sources of Answer a. government-created monopolies. b. natural monopolies. c. antitrust regulation. d. resource monopolies. .2 points Question 21 A benefit to society of the patent and copyright laws is that those laws Answer a. elp to keep prices down. b. encourage creative activity. c. discourage the production of inefficient products. d. help to prevent a single firm from acquiring ownership of a key resource. .2 points Question 22 Patent and copyright laws encourage Answer a. creative activity. b. lower prices due to decreasing average total costs. c. competition among firms. d. All of the above are correct. .2 points Question 23 Drug companies are allowed to be monopolists in the drugs they discover in order to Answer a. encourage research. b. discourage new firms from entering the drug market. c. llow drug companies to charge a price that is equal to their marginal cost. d. allow the government to earn patent revenue. .2 points Question 24 Scenario 15-2 Consider a local, privately-owned electrical cooperative named Minny County Megawatts (MCM, LLC). MCM has just completed a natural-gas-burning electrical power plant in the Midwest. Currently, MCM can meet the electricity needs of all residents in the county. In fact, its capacity far exceeds the needs of the county. After just a few years of operation, the shareholders of MCM experienced incredible rates of return on their investment due to the profitability of the corporation.
Refer to Scenario 15-2. MCM will continue to be a monopolist in the electricity industry only if Answer a. population growth leads to an increased demand for electricity. b. there are no new entrants to the market. c. the price of natural gas decreases. d. All of the above are correct. .2 points Question 25 Which of the following is a characteristic of a natural monopoly? Answer a. Fixed costs are typically a small portion of total costs. b. Average total cost declines over large regions of output. c. The product sold is a natural resource such as diamonds or water. d. All of the above are correct. 2 points Question 26 Which of the following is a characteristic of a natural monopoly? Answer a. Average cost exceeds marginal cost over large regions of output. b. Increasing the number of firms increases each firm’s average total cost. c. One firm can supply output at a lower cost than two firms. d. All of the above are correct. .2 points Question 27 The defining characteristic of a natural monopoly is Answer a. constant returns to scale over the relevant range of output. b. diseconomies of scale over the relevant range of output. c. constant marginal cost over the relevant range of output. d. conomies of scale over the relevant range of output. .2 points Question 28 Natural monopolies differ from other forms of monopoly because they are Answer a. not regulated by government. b. are generally not worried about competition eroding their monopoly position in the market. c. not subject to barriers to entry. d. unable to sustain long-run profits. .
2 points Question 29 A natural monopolist’s ability to price its product is Answer a. enhanced by regulatory control of the government. b. not affected by market demand. c. constrained by the market demand curve. d. constrained by market supply. 2 points Question 30 When an industry is a natural monopoly, Answer a. a larger number of firms will lead to a higher average cost. b. it is characterized by diseconomies of scale. c. a larger number of firms may lead to a lower average cost. d. it is characterized by constant returns to scale. .2 points Question 31 A firm that is a natural monopoly Answer a. is not likely to be concerned about new entrants eroding its monopoly power. b. is taking advantage of diseconomies of scale. c. would experience a lower average total cost if more firms entered the market. d. All of the above are correct. 2 points Question 32 When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a Answer a. government monopoly. b. exclusive industry. c. natural monopoly. d. resource industry. .2 points Question 33 A natural monopoly arises when Answer a. the government gives a single firm the exclusive right to produce a particular good or service. b. there are constant returns to scale over the relevant range of output. c. there are economies of scale over the relevant range of output. d. one firm owns a key natural resource. 2 points Question 34 When a firm has a natural monopoly, the firm’s Answer a. marginal cost curve must lie above the firm’s average total cost curve. b. average total cost curve is downward sloping. c. total cost curve is horizontal. d. marginal cost always exceeds its average total cost. .2 points Question 35 If government officials break a natural monopoly up into several smaller firms, then Answer a. the average costs of production will increase. b. the average costs of production will decrease. c. competition will force firms to attain economic profits rather than accounting profits. d. ompetition will force firms to produce surplus output, which drives up price. .
2 points Question 36 When there are economies of scale over the relevant range of output for a monopoly, the monopoly Answer a. has monopoly power due to the ownership of a patent or copyright. b. is a government-granted monopoly. c. has monopoly power due to the ownership of a key production resource. d. is a natural monopoly. .2 points Question 37 Which of the following is a characteristic of monopolistic competition? Answer a. identical product b. free entry c. ownership of a key resource by a single firm d. atents .2 points Question 38 A typical firm in the US economy would be classified as Answer a. a duopolist. b. an oligopolist. c. imperfectly competitive. d. perfectly competitive. .2 points Question 39 The typical firm in the US economy Answer a. has some degree of market power. b. is a monopoly. c. is perfectly competitive. d. sells its product for a price that is equal to the marginal cost of producing the last unit. .2 points Question 40 Which of the following pairs illustrates the two extreme examples of market structures? Answer a. competition and monopoly b. competition and oligopoly . monopoly and monopolistic competition d. oligopoly and monopolistic competition .2 points Question 41 The general term for market structures that fall somewhere between monopoly and perfect competition is Answer a. monopolistically competitive markets. b. imperfectly competitive markets. c. oligopoly markets. d. incomplete markets. .2 points Question 42 The two types of imperfectly competitive markets are Answer a. markets with differentiated products and monopoly. b. oligopoly and monopoly. c. markets with differentiated products and oligopoly. d. monopolistic competition and oligopoly. 2 points Question 43 Which of the following statements is not correct? Answer a. Both monopolistic competition and perfect competition are characterized by product differentiation. b. Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly. c. Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry. d.
Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly. .2 points Question 44 An oligopoly is a market in which Answer a. the actions of one seller in the market have no impact on the other sellers’ profits. b. there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market. c. firms are price takers. d. there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market. .2 points Question 45
One characteristic of an oligopoly market structure is: Answer a. the actions of one seller have no impact on the profitability of other sellers. b. products typically sell at a price equal to their marginal cost of production. c. firms in the industry are typically characterized by very diverse product lines. d. firms in the industry have some degree of market power. .2 points Question 46 A market structure with only a few sellers, each offering similar or identical products, is known as Answer a. monopoly. b. perfect competition. c. monopolistic competition. d. oligopoly. .2 points Question 47
The higher the concentration ratio, the Answer a. more control an individual firm has to set prices. b. more competitive the industry. c. less competitive the industry. d. Both a and c are correct. .2 points Question 48 One key difference between an oligopoly market and a competitive market is that oligopolistic firms Answer a. sell their product at a price equal to marginal cost while competitive firms do not. b. can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make. c. are price takers while competitive firms are not. . sell completely unrelated products while competitive firms do not. .2 points Question 49 Which of the following is an example of a monopolistically competitive industry? Answer a. computer operating systems b. tennis balls c. movies d. cable television .2 points Question 50 Which of the following is an example of a monopolistically competitive industry? Answer a. restaurants in New York City b. cigarettes c. milk d. breakfast cereals .2 points Save and Submit Click Save and Submit to save and submit. Click Save All Answers to save all answers. Click Close Window to close window.
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