Question 1

We categorize market structures according to

Accepted Answer

Market structures are categorized based on the number of firms in the market, the conditions of entry or exit in the market, and the substitutability of goods, which refers to how easily products or services offered by different firms can replace each other in the eyes of consumers.

Question 2

The single most important factor that determines market structure is

Accepted Answer

The number of firms in the industry is the single most important factor that determines market structure because it directly influences the level of competition, market power, and pricing strategies within the market.

Question 3

If you are told that the green cheese market on the moon is a monopoly, you would know that there

Accepted Answer

A monopoly exists when there is only one seller in the market, which means that this seller controls the entire supply of the product or service, in this case, green cheese on the moon.

Question 4

An oligopoly is a market structure in which there are

Accepted Answer

An oligopoly is characterized by the presence of only a few firms in the industry, which means that each firm holds a significant portion of the market share and has the power to influence market prices and outcomes.

Question 5

Monopolistic competition is a market structure in which there are

Accepted Answer

Monopolistic competition is characterized by a large number of firms producing similar but not identical products, which are considered substitute goods. This allows for some degree of market power for individual firms while maintaining competitive market dynamics.

Question 6

Arranging the four market structures according to the number of firms in the industry ,from fewest to the most, would be

Accepted Answer

Monopoly has the fewest firms (often just one), oligopoly has a few dominant firms, monopolistic competition has many firms with differentiated products, and perfect competition has the most firms, all selling identical products.

Question 7

According to the text, most real world market structures are mainly

Accepted Answer

Most real-world market structures do not fit perfectly into the categories of perfect competition or pure monopoly. Instead, they often exhibit characteristics of oligopolies (where a few firms dominate) and monopolistic competition (where many firms compete on product differentiation), making these two the most common market structures observed in practice.

Question 8

Which of the following is a distinguishing characteristic of the oligopoly market structure?

Accepted Answer

Oligopoly markets are characterized by a few large firms dominating the market, which often results in difficult entry for new competitors due to high barriers such as significant startup costs, access to technology, and regulatory hurdles.

Question 9

Mutual interdependence implies that

Accepted Answer

Mutual interdependence is a characteristic of oligopolies, where the actions of one firm can significantly impact the decisions and outcomes of other firms within the same industry. This means each firm must consider the potential reactions of its competitors when making strategic decisions, such as setting prices or output levels.

Question 10

Mutual interdependence is an important characteristic of the ________ market structure(s).

Accepted Answer

Oligopoly is characterized by mutual interdependence because a few large firms dominate the market, and the actions of one firm can significantly impact the others.

Question 11

Monopoly is a market structure with

Accepted Answer

In a monopoly, there are significant barriers to entry, preventing new firms from entering the market.

Question 12

Which of the following could explain why a firm that is not a monopoly becomes one?

Accepted Answer

A patent gives a firm exclusive rights to produce a good or service, which can create a monopoly.

Question 13

In a monopoly market structure, the industry demand

Accepted Answer

In a monopoly market structure, there is only one firm that constitutes the entire industry. Therefore, the demand curve faced by the firm is the same as the industry demand curve, which is typically downward sloping. This reflects that the monopolist can sell more only by lowering the price.

Question 14

The firm's demand curve and the industry's demand curve are identical in the _________market structure(s).

Accepted Answer

In a monopoly market structure, the firm is the sole provider of a particular good or service, making the firm's demand curve identical to the industry's demand curve, as there are no other firms in the industry to share the demand.

Question 15

What distinguishes a natural monopoly from a monopoly?

Accepted Answer

A natural monopoly occurs when a single firm can supply the entire market more efficiently than multiple firms, leading to lower average total costs. This is often due to high fixed costs and economies of scale that make it impractical for new entrants to compete.

Question 16

A distinguishing characteristic of a natural monopoly is that

Accepted Answer

A natural monopoly is characterized by economies of scale over the entire range of production, which means that average total cost (ATC) decreases as output increases. This makes it more efficient for a single firm to serve the entire market.

Question 17

Think of the firms and industries that are familiar to you-how many firms in the industry, what their cost structures may look like-and decide which among them is least likely to be a natural monopoly.

Accepted Answer

An alternative rock band is least likely to be a natural monopoly because the music industry typically has low barriers to entry, and there are many bands and artists competing for listeners. Unlike utilities or pharmaceuticals, the cost structure does not favor a single producer dominating the market.

Question 18

Which of the following could effectively destroy a monopoly structure?

Accepted Answer

The appearance of just one close substitute good can effectively destroy a monopoly structure by introducing competition, thereby reducing the monopoly's market power and control over prices.

Question 19

Which of the following could be threatening to an existing monopoly structure?

Accepted Answer

Technological innovation can introduce new methods of production, making the old techniques obsolete. This can allow new entrants to compete with the monopolist, potentially threatening the monopoly's dominance.

Question 20

Which of the following serves to protect a monopoly structure?

Accepted Answer

Continuing exclusive access to resources required to produce the good can protect a monopoly structure by preventing potential competitors from entering the market, as they cannot access the necessary resources to compete.

Quiz 10: Identifying Markets and Market Structures