Deck 5: Competition and Market Power

Question 1

Perfect competition requires a nonstandard product.

Answer 1

False
Explanation: Perfect competition requires a standardized product so buyers can make easy comparisons.

Question 2

A _______ monopoly is an industry in which it makes economic sense to have only one provider.

A) specific
B) original
C) natural
D) competitive

Answer 2

C
Explanation: The old AT&T was an example of a natural monopoly. Because of the cost of investment, it made sense to have one provider.

Question 3

_________ collusion can occur even when oligopolistic businesses do not directly communicate with each other.

A) Explicit
B) Implicit
C) Ordinary
D) Extraordinary

Answer 3

B
Explanation: Implicit collusion occurs when oligopolists do not communicate directly about price; however they let one company, the market-leader, set prices in the market.

Question 4

___________ is the ability to raise prices above the level perfect competition would produce by restricting the quantity supplied.

A) Market power
B) Monopolistic power
C) Oligarchic power
D) Perfect marketing

Question 5

Businesses will generally shut down if they lose money for one or two years.

Question 6

In perfect competition,a profit-maximizing business will expand until its marginal cost equals the market price.

Question 7

A market where there is only one seller,and buyers have no good alternative,is called a(n)

A) oligopoly.
B) oligarchy.
C) monopoly.
D) perfect completion market.

Question 8

An oligopoly occurs when there

A) are a large number of sellers in a market producing a variety of products.
B) are a few sellers in a market.
C) is only one seller in a market.
D) are a large number of sellers producing similar products.

Question 9

Advertising a brand can help create a reputation effect.

Question 10

Under the right circumstances,competition could be a win-win proposition for companies and consumers.

Question 11

Marshall Field's and Sterns Department Stores are examples of low-cost producers in a perfect competition market.

Question 12

If two or more oligopolistic companies work together to keep their prices high and split the market between them,this is called

A) occlusion.
B) collusion.
C) profit splitting.
D) market sharing.

Question 13

In perfect competition,all buyers and sellers are price takers.

Question 14

In perfect competition,all businesses in a market produce at the point where ________ equals __________.

A) market price; marginal cost
B) marginal price; marginal cost
C) average revenue; average cost
D) average price; average cost

Question 15

In perfect competition,a profit-maximizing business will expand until its _________ equals the market price.

A) marginal product
B) average cost
C) marginal revenue
D) marginal cost

Question 16

A business can escape perfect competition by building a better,more innovative product.

Question 17

Natural monopolies include

A) cell phone companies.
B) fast-food outlets.
C) colleges and universities.
D) the local water company.

Question 18

In perfect competition,if there are no barriers to entry,only the lowest-cost businesses survive over the long run.

Question 19

Monopolistic competition is characterized by

A) a large number of sellers with a similar product.
B) one seller with a standard product.
C) a limited number of sellers with a variety of products.
D) one seller with a variety of products.

Question 20

In a market with perfect competition,given enough time and no barriers to entry,profits will tend toward zero in the long run.

Question 21

An example of an oligopoly is the

A) airline industry.
B) convenience store industry.
C) car wash industry.
D) photocopying services industry.

Question 22

The easiest way to have a monopoly today is

A) to be in a socialistic country.
B) to have the government protect you.
C) to own everything in your market.
D) with a strong business plan.

Question 23

A good example of monopolistic competition is

A) neighborhood restaurants.
B) defense contractors.
C) airlines serving a small city.
D) brain surgeons.

Question 24

Microsoft's two main products,Windows and Office,could be examples of

A) perfect competition.
B) monopolistic competition.
C) a natural monopoly.
D) an oligopoly.

Question 25

Market power is

A) the combination of price and product.
B) the balance between average and marginal product.
C) another term for equilibrium.
D) the ability to raise prices above the prices that would exist under perfect competition.

Question 26

The four main types of market structure are

A) perfect competition, monopolistic competition, oligopoly, and monopoly.
B) land, labor, capital, and business know-how.
C) average market, market balance, equilibrium, and marginal product.
D) marginal cost, revenue, product, and price.

Question 27

__________ is paid communication with potential customers in a public medium,such as newspapers and television.

A) Journalism
B) Advertising
C) Public relations
D) Brand identification

Question 28

An example of a barrier to entry is

A) plentiful natural resources.
B) low-cost resources.
C) lack of a key resource.
D) helpful government regulation.

Question 29

A business with market power may

A) be less innovative than businesses in perfect competition.
B) force employees to work harder and longer.
C) create new markets due to competitive forces.
D) sometimes use high profits to research new technologies.

Question 30

In the long run,monopolistic competition starts to look like

A) Perfect competition.
B) Market satiation.
C) Market balance.
D) An equalized market.

Question 31

AT&T is an example of a business that used market power to

A) avoid government regulation.
B) invest in important research benefiting society.
C) minimize average costs of production.
D) squash the competition.

Question 32

A __________ is anything that might make it more difficult for a competitor to enter a market.

A) monopolistic entry
B) marginal entry
C) barrier to entry
D) perfect competition market

Question 33

The profit-maximizing rule says that a seller will expand output up to the point

A) Where marginal revenue equals price.
B) Where marginal revenue equals marginal cost.
C) Where marginal revenue is less than the price.
D) Where marginal cost equals marginal revenue.

Question 34

A profit-maximizing monopolist will always charge _______ a perfect competitor would.

A) less than
B) more than
C) the same as

Question 35

Marginal revenue is generally __________ for businesses that do not operate under conditions of perfect competition.

A) lower than the average cost
B) higher than the price
C) lower than the price
D) lower than the marginal product

Question 36

Monopolies generally _____________ technology and globalization.

A) grow with
B) thrive with
C) are reduced in number by
D) are unaffected by

Question 37

Does the stock market resemble a perfectly competitive market?

A) No, because there are not enough buyers and sellers in the stock market.
B) No, because the products (stocks) in the market are not standardized enough.
C) No, because the buyers and sellers in the market lack access to reliable information about prices in the market.
D) Yes, the stock market does resemble a perfectly competitive market.

Question 38

If music was perfectly competitive,then all performers would

A) charge the same price for concerts, but not necessarily play the same music.
B) play the same music, but not necessarily charge the same price for concerts.
C) play the same music and charge the same price for concerts.
D) produce a nonstandardized product.

Question 39

Companies will often spend considerable amounts of money to create a ____________ in regards to their brand name.

A) market effect
B) product orientation
C) relational effect
D) reputation effect

Question 40

If two drugstores in a market agree that they will both sell Fritos at a higher price,and neither will undercut the other,this is called

A) market banding.
B) occlusion.
C) implicit collusion.
D) collusion.

Question 41

In perfect competition,higher-cost businesses

A) thrive and grow.
B) increase marginal revenue.
C) tend to go out of business if unable to adjust.
D) tend toward oligopolies.

Question 42

If all of the restaurants in a small town colluded and agreed to raise dinner prices,this would lead to a loss to society because

A) some dinners that could be served are not.
B) the number of dinners served stays the same, but the buyers face higher prices.
C) collusion is illegal.
D) the restaurants would become too crowded with new customers.

Question 43

When businesses have market power,they are able to charge a price higher than the price charged by a business in perfect competition.Thus the market power equilibrium on a diagram will be

A) higher and to the right of the perfect competition equilibrium.
B) higher and to the left of the perfect competition equilibrium.
C) lower and to the right of the perfect competition equilibrium.
D) lower and to the left of the perfect competition equilibrium.

Question 44

$$\begin{array}{l}\begin{array} { c | c } \begin{array} { c } \text { Output } \\\text { (Bushels of } \\\text { Barley) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Cost } \\\text { (Dollars) }\end{array} \\\hline 10 \text { bushels } & \$ 0.30 \\20 \text { bushels } & \$ 0.60 \\30 \text { bushels } & \$ 0.90 \\40 \text { bushels } & \$ 1.20\end{array}\\\text { Table } 5.1\end{array}$$ Refer to Table 5.1,which gives Farmer McColl's marginal cost function for barley.Suppose Farmer McColl is one of 20 farmers in the barley market,and all of the farmers have identical marginal cost functions.If the market price of barley is $1.00 per bushel,which of the following could be the total amount of barley produced in the market?

A) 700.
B) 33.
C) 340.
D)600

Question 45

$$\begin{array}{l}\begin{array} { c | c } \begin{array} { c } \text { Output } \\\text { (Bushels of } \\\text { Barley) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Cost } \\\text { (Dollars) }\end{array} \\\hline 10 \text { bushels } & \$ 0.30 \\20 \text { bushels } & \$ 0.60 \\30 \text { bushels } & \$ 0.90 \\40 \text { bushels } & \$ 1.20\end{array}\\\text { Table } 5.1\end{array}$$ Refer to Table 5.1,which gives Farmer McColl's marginal cost function for barley.If Farmer McColl is currently producing 25 bushels of barley,which of the following could be the market price for a bushel of barley?

A) $0.75.
B) $1.88.
C) $7.50.
D) $18.75.

Question 46

Natural monopolies have been slowly eroded by

A) perfect competition.
B) technological change.
C) market imbalances.
D) rising costs.

Question 47

In a market where businesses are earning high profits,new entrants will cause the supply curve to shift to the _________ and the market price to _________.

A) left; rise
B) left; fall
C) right; rise
D) right; fall

Question 48

In perfect competition,P = MC means

A) Profit equals marginal cost.
B) Price equals market cost.
C) Price equals marginal cost.
D) Profit equals market cost.

Question 49

If a local diner can sell 50 burgers per day at a price of $5 each,but must reduce the menu price to $4.95 to sell one more burger,what is the marginal revenue of the 51^st burger?

A) -$0.05.
B) $2.45.
C) $4.95.
D) $252.45.

Question 50

A ___________ makes it more difficult for a competitor to enter a market.

A) luxury product
B) barrier to entry
C) lower price
D) lower cost

Question 51

Which of the following is NOT an example of a barrier to entry?

A) lower costs.
B) scarce land.
C) rare natural minerals.
D) heavy government regulations.

Question 52

Government regulations,such as zoning laws,can act as

A) barriers to entry.
B) marginal costs.
C) long-term costs.
D) the Big Squeeze.

Question 53

The local department store used to be ___________ before technological change.

A) a monopoly
B) a perfect competitor
C) an oligopoly
D) a natural monopoly

Question 54

$$\begin{array}{l}\begin{array} { c | c } \begin{array} { c } \text { Output } \\\text { (Bushels of } \\\text { Barley) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Cost } \\\text { (Dollars) }\end{array} \\\hline 10 \text { bushels } & \$ 0.30 \\20 \text { bushels } & \$ 0.60 \\30 \text { bushels } & \$ 0.90 \\40 \text { bushels } & \$ 1.20\end{array}\\\text { Table } 5.1\end{array}$$ Refer to Table 5.1,which gives Farmer McColl's marginal cost function for barley.If the current market price for barley is $1.00 per bushel,how much barley should Farmer McColl produce?

A) 20 bushels.
B) 30 bushels.
C) Between 30 and 40 bushels.
D) More than 40 bushels.

Question 55

A profitable business will attract

A) new competitors.
B) government regulation.
C) increases in marginal revenue.
D) existing businesses.

Question 56

Which of the following is most likely to be sold in a perfectly competitive market?

A) Law School Admission Test (LSAT) tutoring.
B) Wheat.
C) Fast food.
D) Automobiles.

Question 57

From World War II to the early 1970s,GM,Ford,and Chrysler enjoyed

A) perfect competition.
B) a natural monopoly.
C) market power.
D) market advantage.

Question 58

If a local car dealership can sell 8 cars per day at a price of $25,000 each,but must reduce the price to $24,000 to sell one more car,what is the marginal revenue of the 9^th car?

A) -$1,000.
B) $16,000.
C) $24,000.
D) $216,000.

Question 59

$$\begin{array}{l}\begin{array} { c | c } \begin{array} { c } \text { Output } \\\text { (Bushels of } \\\text { Barley) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Cost } \\\text { (Dollars) }\end{array} \\\hline 10 \text { bushels } & \$ 0.30 \\20 \text { bushels } & \$ 0.60 \\30 \text { bushels } & \$ 0.90 \\40 \text { bushels } & \$ 1.20\end{array}\\\text { Table } 5.1\end{array}$$ Refer to Table 5.1,which gives Farmer McColl's marginal cost function for barley.If Farmer McColl is currently producing 20 bushels of barley,which of the following is the market price for a bushel of barley?

A) $0.60.
B) $1.20.
C) $6.00.
D) $12.00.

Question 60

What are some of the benefits of perfect competition?

Question 61

In monopolistic competition,a business may enjoy a unique advantage in the short term.In the long term,what could happen to this unique advantage?

Question 62

Compared to businesses with market power,businesses in perfect competition will charge __________ prices and sell __________ output.

A) higher; more
B) higher; less
C) lower; more
D) lower; less

Question 63

Over the long run,why do low-cost providers generally prevail?

Question 64

Why does perfect competition often lead to a market in which profits tend toward zero?

Question 65

Why does the government sometimes support a monopoly?