Pure Competition
The market for aluminum cans is perfectly competitive, and the current market price is 3 cents per can. The demand curve facing an individual aluminum can producer is:
a. Downward Sloping
b. Upward Sloping
c. Horizontal
d. Vertical
c. Horizontal
What is the definition of a pure monopoly?
a. A market with many small firms competing
b. A single firm that is the sole producer of a product with no close substitutes and high barriers to entry
c. Two dominant firms that control market prices
d. A market where government regulations prevent competition
b. A single firm that is the sole producer of a product with no close substitutes and high barriers to entry
Which of the following is NOT a feature of monopolistic competition?
a. Many sellers in the market
b. Slightly varied products
c. Substantial entry barriers
d. Some degree of pricing power
c. Substantial entry barriers
Which of the following best describes an oligopolistic market?
a. Many firms selling identical goods
b. A small number of firms dominating market output
c. A single firm setting prices freely
d. Constant entry and exit of new firms
b. A small number of firms dominating market output
A small business that sells identical corn at the local grain market operates as a:
a. Price setter
b. Price taker
c. Market regulator
d. Collusive competitor
b. Price taker
In a pure monopoly, the firm is considered a:
a. Price maker
b. Price taker
c. Market regulator
d. Competitive bidder
a. Price maker
When firms in a monopolistically competitive market earn profits in the short run, what occurs?
a. Current firms will shut down
b. New firms will enter the market, reducing demand for existing firms
c. Product prices will rise further
d. Market output will decline
b. New firms will enter the market, reducing demand for existing firms
Based on recent data, which industry tends to have one of the highest 4-firm concentration ratios?
a. Bottled water production
b. Automobile manufacturing
c. Snack foods
d. Mobile telecommunications
d. Mobile telecommunications
Which of the following is not a characteristic of a perfectly competitive market?
a. Identical products
b. Many small sellers
c. High barriers to entry
d. No control over price
c. high Barriers to entry
A technological monopoly is formed when:
a. A company has exclusive rights to operate in a specific location
b. A company controls a manufacturing method, process, or scientific advancement
c. A single firm can supply the entire market at a lower cost than multiple firms
d. The government grants exclusive rights to provide a service
b. A company controls a manufacturing method, process, or scientific advancement
Which of the following represents non-price competition?
a. Offering major price discounts
b. Undercutting competitors’ prices
c. Redesigning logos and running new ad campaigns
d. Charging the same price as everyone else
c. Redesigning logos and running new ad campaigns
In oligopolies, firms may produce:
a. Only standardized goods
b. Only differentiated goods
c. Either homogeneous or differentiated products
d. Only goods with luxury branding
c. Either homogeneous or differentiated products
In the long run, a purely competitive firm’s economic profits will:
a. Be maximized
b. Fall to zero
c. Fluctuate unpredictably
d. Turn negative as costs increase
b. Fall to zero
Which type of monopoly occurs when a firm holds the exclusive right to operate in a specific location?
a. Natural monopoly
b. Technological monopoly
c. Geographic monopoly
d. Government monopoly
c. Geographic monopoly
The Four-Firm Concentration Ratio (CR₄) is determined by:
a. Adding together the sales of all firms
b. Summing the market shares of the four largest firms
c. Multiplying the total output by industry price
d. Squaring the market shares of each of the top firms
b. Summing the market shares of the four largest firms
Why is collusion typically illegal under antitrust laws?
a. It promotes market efficiency
b. It drives consumer prices lower
c. It prevents monopolies from forming
d. It harms consumers by raising prices and limiting competition
d. It harms consumers by raising prices and limiting competition
Why can’t a firm in a perfectly competitive industry raise its prices above the market equilibrium?
a. Laws prohibit price changes
b. Buyers will boycott the firm
c. Buyers can purchase identical goods from other sellers at the market price
d. Foreign producers control the market price
c. Buyers can purchase identical goods from other sellers at the market price
What happens to consumer and producer surplus in a monopoly compared to perfect competition?
a. Both consumer and producer surplus increase
b. Consumer surplus increases, producer surplus decreases
c. Consumer surplus decreases, producer surplus increases
d. Both consumer and producer surplus decrease
c. Consumer surplus decreases, producer surplus increases
The Herfindahl-Hirschman Index (HHI) differs from the CR₄ because it:
a. Focuses only on the largest single firm
b. Ignores medium-sized competitors
c. Weighs all firms but gives larger ones more influence
d. Applies only to monopolistic markets
c. Weighs all firms but gives larger ones more influence
What is a Nash Equilibrium in oligopoly theory?
a. A situation of perfect price competition
b. A set of strategies where no player gains by changing strategy alone
c. A point where firms maximize joint profit
d. A full agreement among all firms to cooperate
b. A set of strategies where no player gains by changing strategy alone