Perfect Competition, Part 1
Which of the following is the best example of a perfectly competitive industry?
A) steel production
B) wheat production
C) electricity production
B) wheat production
Which of the following is NOT a characteristic of perfectly competitive marketplace?
A) there are only a few suppliers of products.
B) there are almost no restrictions to firms entering and exiting the market.
C) the firms in this marketplace sell almost identical products.
A) there are only a few suppliers of products.
A firm will make a profit when:
A) P > ATC
B) P = ATC
C) P < AVC
A) P > ATC
Which of the following is not a characteristic of a monopolistically competitive market structure?
A) There are independently acting small number of sellers.
B) Sellers sell products that are differentiated.
C) There are low barriers to entry of new firms.
A) There are independently acting small number of sellers.
A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except
A) a decrease in the number of rival products.
B) new rivals entering the market.
C) a decrease in demand for its product.
A) a decrease in the number of rival products.
Firms use two marketing tools to differentiate their products. What are these two tools?
A) lobbying and word of mouth
B) market research and demand estimation
C) brand management and advertising
C) brand management and advertising
The demand curve for an individual seller's product in perfect competition is
A) vertical.
B) downward sloping.
C) horizontal.
C) horizontal.
What is always true at the quantity where a firm's average total cost equals average revenue?
A) The firm's revenue is maximized.
B) The firm's profit is maximized.
C) The firm breaks even.
C) The firm breaks even.
Ben's Peanut Shoppe suffers a short-run loss. Ben will not choose to shut down if
A) his Shoppe's total revenue exceeds his capital costs.
B) his Shoppe's total revenue exceeds his variable cost.
C) his Shoppe's total revenue exceeds his fixed cost.
B) his Shoppe's total revenue exceeds his variable cost.
In August 2008, Ethan Nicholas developed the iPicture application for the Apple iPhone 3G (a relatively new product in 2008), and within five months had earned $800,000 from this program. By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales. This example indicates that in a competitive market
A) earning an economic profit in the long run is extremely easy.
B) earning an economic profit in the long run is extremely difficult.
C) it is impossible to earn an economic profit in either the short run or the long run.
B) earning an economic profit in the long run is extremely difficult.
Buffalo Wild Wings CEO Sally Smith decided to spend more than $200 million on restaurant renovations in an attempt to attract more lunch customers and more families. Like CEOs of other monopolistically competitive firms, Smith knew that without innovating
A) her firm had no chance of remaining in business.
B) her firm's profits would not eventually be competed away by other firms.
C) her firm would eventually earn an accounting profit of zero.
C) her firm would eventually earn an accounting profit of zero.
Brand management refers to
A) the efforts to maintain the differentiation of a product over time.
B) efforts to reduce the cost of production.
C) selling the right to use a brand name in a particular market.
A) the efforts to maintain the differentiation of a product over time.
Both buyers and sellers are price takers in a perfectly competitive market because
A) each buyer and seller is too small relative to others to independently affect the market price because products are almost identical.
B) the price is determined by government intervention and dictated to buyers and sellers.
C) each buyer and seller knows it is illegal to conspire to affect price.
A) each buyer and seller is too small relative to others to independently affect the market price because products are almost identical.
In analyzing the decision to shut down in the short run we assume the firm's fixed costs are
A) implicit costs.
B) sunk costs.
C) nonmonetary opportunity costs.
B) sunk costs.
Which of the following is the best example of a perfectly competitive firm?
A) the Ford Motor Company
B) United Parcel Service (UPS)
C) a farmer who grows corn in Nebraska.
C) a farmer who grows corn in Nebraska.
A major difference between monopolistic competition and perfect competition is
A) the number of sellers in the markets.
B) that products are not standardized in monopolistic competition unlike in perfect competition.
C) the degree by which the market demand curves slope downwards.
C) the degree by which the market demand curves slope downwards.
Tony's Italian Ice is a monopolistically competitive firm. If Tony's earns a profit in the short run, which of the following is most likely to occur?
A) New firms that sell Italian ice will enter the market and Tony's cost curves will shift to the left.
B) New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the left.
C) New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the right.
B) New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the left.
The purpose of marketing in monopolistically competitive markets involves
A) the product being sold and advertising.
B) the price of the product being sold and advertising.
C) the product, price, promotion, and placement or distruction of the product being offered for sale.C) the product, price, promotion, and placement or distribution of the product being offered for sale.
For a perfectly competitive firm, at profit maximization
A) market price exceeds marginal cost.
B) total revenue is maximized.
C) marginal revenue equals marginal cost.
C) marginal revenue equals marginal cost.
Alphonse Starzec, an accountant, quit his $80,000-a-year job and bought an existing restaurant from its previous owner, Sylvia Sidney. The lease is non-negotiable and must be paid as well as having five years remaining and requires a monthly payment of $4,000. The lease
A) is a fixed cost of operating the restaurant.
B) is a variable cost of operating the restaurant.
C) is an implicit cost of operating the restaurant.
A) is a fixed cost of operating the restaurant.
Which of the following is a characteristic of an oligopolistic market structure?
A) There are few dominant sellers.
B) Each firm sells a unique product.
C) It is easy for new firms to enter the industry.
A) There are few dominant sellers.
Which of the following is not an example of a monopolistically competitive market?
A) automobile producers
B) supermarkets
C) gas stations
A) automobile producers
A monopolistically competitive firm that is profitable in the short run will face competition that will eventually eliminate the firm's profits in the long run. But the firm can stave off competition and continue to earn economic profits if
A) it can successfully sue its competitors for copyright infringement.
B) it can lobby the government to establish a price floor for its product.
C) it can find new ways to differentiate its product and/or lower its variable costs.
C) it can find new ways to differentiate its product and/or lower its variable costs.
Manufacturers of products that are innovations, in a monopolistically competitive marketplace, and brand new to the marketplace
A) will always remain the number-one supplier in this marketplace.
B) will remain alone in this marketplace with the innovative product being offered.
C) will face competition from competing firms that may develop similar, but differentiated product offerings.
C) will face competition from competing firms that may develop similar, but differentiated product offerings.
Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's profit?
A) P - ATC
B) (P × Q) - TC
C) (P × Q) - (P × ATC)
B) (P x Q) - TC
When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell
A) nothing at all; the firm shuts down.
B) any positive output the entrepreneur decides upon because all of it can be sold.
C) the output where average total cost equals price.
A) nothing at all; the firm shuts down.
Perfectly competitive market, with regards to efficiency, tends to be
A) allocative efficient.
B) productive efficient.
A monopolistically competitive firm will
A) charge the same price as its competitors do.
B) always produce at the minimum efficient scale of production.
C) have some control over its price because its product is differentiated.
C) have some control over its price because its product is differentiated.
In both monopolistically competitive and perfectly competitive industries
A) there are many buyers and sellers.
B) there are high barriers to entry.
C) firms are price takers.
A) there are many buyers and sellers.
Nike has used Michael Jordan to create the impression that Air Jordan basketball shoes are superior to any other basketball shoes. Nike is attempting to
A) differentiate Air Jordan basketball shoes from other types of basketball shoes.
B) lower the marginal cost of producing Air Jordan basketball shoes.
C) convince consumers that Air Jordan basketball shoes are no different from other basketball shoes favored by celebrities.
A) differentiate Air Jordan basketball shoes from other types of basketball shoes.