Question 1

A depreciation of the U.S. dollar relative to foreign currencies will make

Accepted Answer

A depreciation of the U.S. dollar makes U.S. goods cheaper for foreign buyers, thus increasing the competitiveness of U.S. exports in foreign markets.

Question 2

A monopolist produces 14,000 units of output and charges $14 per unit. Its marginal revenue is $8, its marginal cost is $7 and rising, its average total cost is $10, and its average variable cost is $9. The monopolist should

Accepted Answer

Since marginal revenue ($8) is greater than marginal cost ($7), increasing output will increase the firm's profits.

Question 3

Which of the following is not a criticism of the theory of monopolistic competition?

Accepted Answer

Each option describes a criticism of the theory of monopolistic competition, indicating that none of the statements is an exception or not a criticism.

Question 4

Market structure refers to the competitive environment in which the buyers and sellers of a product operate.

Accepted Answer

Market structure describes how a market is organized, based on the number of firms operating within it, the nature of competition, and the degree of product differentiation. It influences how firms compete with each other and how prices are determined.

Question 5

Economists define a market as a place where buyers go to purchase units of a commodity.

Accepted Answer

Economists define a market not just as a physical location but more broadly as any arrangement that allows buyers and sellers to exchange goods, services, or resources. This can include online platforms, auction houses, or even informal exchanges, not just physical marketplaces.

Question 6

A market structure is defined in terms of the number and sizes of buyers and sellers on a market, the type of product traded on the market, the mobility of resources, and the amount of knowledge economic agents have about market conditions.

Accepted Answer

A market structure is indeed characterized by several key elements including the number and sizes of buyers and sellers in the market, the type of products being traded, the mobility of resources (how easily resources can be moved in and out of the market), and the level of information that participants have regarding market conditions. These factors collectively determine the competitive environment and dynamics of the market.

Question 7

Firms that sell commodities on markets that are imperfectly competitive face downward-sloping demand curves.

Accepted Answer

In imperfectly competitive markets, firms have some degree of market power, which means they can influence the price of their product. This results in a downward-sloping demand curve because as a firm raises its price, some consumers will choose not to buy the product, leading to a decrease in quantity demanded.

Question 8

The combination of product homogeneity and perfect knowledge ensure that a single price will prevail on a perfectly competitive market.

Accepted Answer

In a perfectly competitive market, product homogeneity (all firms produce identical products) and perfect knowledge (all buyers and sellers have full information about prices and products) ensure that no single seller can charge more than the going price, leading to a single price prevailing in the market.

Question 9

Product price on a competitive market is determined by the intersection of the market demand curve with the market supply curve.

Accepted Answer

In a competitive market, the price of a product is determined at the point where the quantity demanded by consumers equals the quantity supplied by producers, which is where the market demand curve intersects with the market supply curve.

Question 10

If a firm in a perfectly competitive industry charges a higher price than that charged by other firms in the industry it will be unable to sell any of its output.

Accepted Answer

In a perfectly competitive market, all firms sell identical products, and there are many buyers and sellers, with no single entity able to influence the market price. If a firm tries to charge more than the going market price, consumers will simply buy from other firms offering the product at the lower, market price, leaving the firm that increased its price with no sales.

Question 11

If profit maximizing firms in a perfectly competitive industry are producing 14,000 units per day, but can only sell 12,000 units per day at the current market price of $23, then the market equilibrium price must be greater than $23.

Accepted Answer

In a perfectly competitive market, if firms are producing more than what they can sell at the current price, it indicates that the price is above the equilibrium. The excess supply would lead to a decrease in price towards the equilibrium, not an increase.

Question 12

If profit maximizing firms in a perfectly competitive industry will produce 14,000 units per day if the market price is $23 and consumers will purchase 14,000 units per day if the market price is $20, then the market equilibrium quantity must be greater than 14,000.

Accepted Answer

In a perfectly competitive market, equilibrium is reached when the quantity supplied equals the quantity demanded. Since firms are willing to supply 14,000 units at $23 and consumers are willing to purchase 14,000 units at $20, the equilibrium quantity must be 14,000 units at a price between $20 and $23, not greater than 14,000.

Question 13

The efficient market hypothesis asserts that the price of a share of a firm's stock reflects the value implied by available information about the profitability of the firm.

Accepted Answer

The efficient market hypothesis (EMH) posits that stock prices fully reflect all available information, meaning that the current share prices on the stock market are the best approximation of a company's true value, including its profitability.

Question 14

The only choice available to a perfectly competitive firm that is producing efficiently is what price to charge in order to maximize profits.

Accepted Answer

In perfect competition, firms are price takers, meaning they cannot choose the price at which to sell their goods. Instead, they adjust their output level to maximize profits based on the market price.

Question 15

If a perfectly competitive firm is producing a level of output where its marginal cost is greater than market price, it should raise its price.

Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot set their own prices but must accept the market price. If marginal cost is greater than the market price, the firm should reduce output to lower costs, not raise its price.

Question 16

If a perfectly competitive firm is producing a level of output where price is equal to marginal cost and greater than average variable cost, then it should cease production in the short run.

Accepted Answer

In this scenario, the firm is covering its variable costs and contributing to fixed costs, so it should continue producing in the short run to minimize losses or potentially make a profit.

Question 17

The supply curve of a perfectly competitive firm is identical to the portion of its marginal cost curve that is above its average total cost curve.

Accepted Answer

The supply curve of a perfectly competitive firm is identical to the portion of its marginal cost curve that is above its average variable cost curve, not its average total cost curve.

Question 18

If a perfectly competitive firm is in long-run equilibrium, then market price is equal to short-run marginal cost, short-run average total cost, long-run marginal cost, and long-run average total cost.

Accepted Answer

In long-run equilibrium under perfect competition, firms adjust their scale of operation such that market price equals not only the short-run marginal cost (SRMC) but also the short-run average total cost (SRATC), long-run marginal cost (LRMC), and long-run average total cost (LRATC), ensuring no economic profit or loss.

Question 19

If more firms enter a perfectly competitive industry, market equilibrium price will increase.

Accepted Answer

In a perfectly competitive industry, if more firms enter the market, the supply increases, leading to a decrease in the market equilibrium price.

Question 20

An increase the number of U.S. dollars required to purchase one British pound would be a depreciation of the U.S. dollar and an appreciation of the British pound.

Accepted Answer

When it takes more U.S. dollars to buy one British pound, it means the value of the U.S. dollar has decreased (depreciated) relative to the British pound, while the value of the British pound has increased (appreciated) relative to the U.S. dollar.

Quiz 7: Market Structure: Perfect Competition, Monopoly, and Monopolistic Competition