Question 1

A firm in a perfectly competitive market structure

Accepted Answer

In a perfectly competitive market, individual firms are price takers, meaning they cannot influence the price of the good or service they are selling. The price is determined by the overall market supply and demand.

Question 2

Perfect competitors produce goods that are

Accepted Answer

Perfect competitors produce goods that are identical, meaning that the products offered by different firms in the market are seen as perfect substitutes for each other. This characteristic is a defining feature of perfect competition.

Question 3

The relevant market is defined as the set of goods whose

Accepted Answer

The relevant market is defined by how substitutable goods are within that market, which is captured by high cross elasticities of demand among goods in the set. This means if the price of one good increases, consumers are likely to switch to another good within the same market, indicating they are close substitutes.

Question 4

A positive cross elasticity of demand means two goods

Accepted Answer

A positive cross elasticity of demand indicates that as the price of one good increases, the demand for another good also increases, suggesting that the two goods are substitutes.

Question 5

Historically, firms charged with monopolizing their markets often successfully argue in court that

Accepted Answer

Firms accused of monopolizing markets often argue that the relevant market should be more broadly defined to include more competitors, thereby making their market share seem smaller and less dominant. This argument can mitigate accusations of monopolistic behavior by suggesting that the firm operates in a larger competitive landscape than initially considered.

Question 6

Historical note: In separate court cases, ALCOA and DuPont both faced charges brought by the government that they

Accepted Answer

Both ALCOA (Aluminum Company of America) and DuPont were charged with monopolizing their markets. ALCOA faced these charges for monopolizing the aluminum market, while DuPont was charged with monopolizing the cellophane market.

Question 7

Historical note: When Dupont was charged with monopoly control of the cellophane market, it responded by arguing that the relevant market was flexible wrapping materials and that they had no monopoly control of that market. That argument

Accepted Answer

Dupont's argument that the relevant market was flexible wrapping materials, not just cellophane, was successful, leading to a ruling that they were not guilty of monopolizing the market.

Question 8

When the charge against ALCOA for exercising monopoly control of the aluminum market was brought to court, ALCOA's market share, excluding scrap aluminum, was

Accepted Answer

ALCOA's market share, excluding scrap aluminum, was approximately 90 percent when the charge for exercising monopoly control of the aluminum market was brought to court. This high market share was a key factor in the monopoly case against them.

Question 9

To determine whether McDonald's hamburgers are in the same market as Domino's pizza ,the criterion we use is their

Accepted Answer

The correct criterion to determine whether McDonald's hamburgers are in the same market as Domino's pizza is their cross elasticities. Cross elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good. If the cross elasticity between McDonald's hamburgers and Domino's pizza is high, it suggests that they are close substitutes and thus in the same market.

Question 10

Suppose we find that the cross elasticities between two goods are relatively high, and their cross elasticities with goods outside the market are zero. From this we can conclude that these two goods

Accepted Answer

High cross elasticities between two goods indicate that they are substitutes for each other, meaning a price change in one affects the demand for the other significantly. If their cross elasticities with goods outside their market are zero, it suggests these goods do not substitute for or compete with goods outside their market, implying they belong to the same market.

Question 11

The cross elasticity between any two goods that determines whether or not they are in the same market is

Accepted Answer

The answer of The cross elasticity between any two goods...

Question 12

The most important characteristic that differentiates one market structure from another is the

Accepted Answer

The number of producers selling in the market is a key characteristic that differentiates market structures, as it affects competition levels and market dynamics.

Question 13

The market structure in which there is only one producer is called

Accepted Answer

A monopoly exists when there is only one producer in the market, giving them significant control over prices and the supply of the product or service.

Question 14

Market structures are defined by all of the following except the

Accepted Answer

Market structures are primarily defined by factors such as the number of firms in the market, the ease of entry for new firms, the presence of substitute goods, and the existence of barriers to entry. The level of prices, while influenced by the market structure, is not a defining characteristic of the market structure itself. Prices are more of an outcome of the competitive dynamics within a market rather than a defining feature.

Question 15

A unique characteristic of oligopolies is their

Accepted Answer

Oligopolies are characterized by mutual interdependence because the actions of one firm can significantly impact the actions and reactions of other firms within the market. This is unique to oligopolies due to the small number of firms and the significant market share each holds.

Question 16

A firm employs 15,000 workers and has annual revenues of over $750 million. Knowing this, we also know that the firm is in what type of market structure?

Accepted Answer

The information provided (number of employees and annual revenues) does not directly indicate the market structure of the firm. Market structures are determined by factors such as the number of firms in the market, the nature of the product (whether it is homogeneous or differentiated), barriers to entry, and the control over price, none of which are specified by the given details.

Question 17

The monopolist's demand curve is identical to

Accepted Answer

The monopolist's demand curve is identical to the industry demand curve because the monopolist is the sole provider of the product or service in the market, thus facing the entire market demand alone.

Question 18

Natural monopolies have all of the following characteristics except

Accepted Answer

Natural monopolies typically have high levels of production to spread out their high fixed costs over many units, making the average cost per unit lower. This is contrary to choice C, which suggests low levels of production, not characteristic of natural monopolies.

Question 19

Think about cost structures associated with each of the following and decide which is most likely to be a natural monopoly.

Accepted Answer

A natural monopoly occurs when a single firm can supply a good or service to an entire market at a lower cost than what it would be if there were multiple firms in the industry. A city bus company fits this description because the infrastructure and operational costs (like bus routes, stops, and maintenance facilities) are so high that having multiple companies would be inefficient and more costly.

Question 20

Think about cost structures associated with each of the following and decide which is most likely not to be a natural monopoly.

Accepted Answer

A personal computer company is most likely not to be a natural monopoly because the production and distribution of personal computers involve competitive markets with multiple manufacturers and brands. Unlike utilities (electric, water, cable television, and local telephone services), which require extensive, region-specific infrastructure that discourages multiple providers, personal computer companies can operate and compete globally without such constraints.

Quiz 10: Identifying Markets and Market Structures