Question 1

Monopolists have a high market share. Market share measures:
A) The total sales of a business
B) The growth in sales of a business over a year
C) The sales of a business compared to the total market sales
D) The profits of the business compared to the total profits in the market

Accepted Answer

Market share is defined as the sales of a business compared to the total market sales. This metric helps in understanding a company's size and control within its industry relative to its competitors.

Question 2

In a perfectly competitive market there are many firms with a similar product as well as barriers to entry.

Accepted Answer

In a perfectly competitive market, there are indeed many firms with similar (homogeneous) products, but one of the key characteristics is the absence of barriers to entry, not their presence. This allows for free entry and exit of firms in the market.

Question 3

A monopolist can earn abnormal profits in the short and long term due to barriers to entry.

Accepted Answer

A monopolist can maintain abnormal profits in both the short and long term because barriers to entry prevent new competitors from entering the market and driving profits down to normal levels.

Question 4

Types of barrier to entry do not include:
A) Structural
B) Systematic
C) Strategic
D) Statutory

Accepted Answer

Systematic barriers to entry are not a recognized category. Structural, strategic, and statutory barriers are the common types recognized in economics. Structural barriers arise from inherent economic factors, strategic barriers are actions by incumbent firms to deter entry, and statutory barriers are legal or regulatory constraints.

Question 5

In a perfectly competitive market the marginal revenue for a firm equals the price.

Accepted Answer

In a perfectly competitive market, firms are price takers, meaning the price is determined by the market. Therefore, the additional revenue gained from selling one more unit (marginal revenue) equals the market price.

Question 6

In a perfectly competitive market the demand for the industry slopes downward but the demand for a single firm's products is horizontal.

Accepted Answer

In a perfectly competitive market, individual firms face a perfectly elastic demand curve because consumers view the products of different firms as perfect substitutes. This means the demand curve for a single firm's product is horizontal, indicating that the firm can sell any quantity at the market price. The industry demand curve, however, slopes downward, reflecting the overall market's decreasing willingness to purchase additional units at higher prices.

Question 7

In a perfectly competitive market the firm is a price maker.

Accepted Answer

In a perfectly competitive market, the firm is a price taker, meaning it must accept the market price as given and cannot influence the price of its product.

Question 8

In a perfectly competitive market a profit maximising firm produces where marginal revenue equals total revenue.

Accepted Answer

In a perfectly competitive market, a profit-maximizing firm produces where marginal revenue equals marginal cost, not total revenue.

Question 9

In a perfectly competitive market in the long run the firm makes abnormal profits

Accepted Answer

In the long run, a perfectly competitive market will lead to firms making normal profits (zero economic profit) due to free entry and exit of firms, which ensures that any abnormal profits are eroded away as new firms enter the market, increasing supply and reducing prices until only normal profits are made.

Question 10

In monopoly the marginal revenue is above the demand curve.

Accepted Answer

In a monopoly, the marginal revenue curve lies below the demand curve because the monopolist faces the entire market demand and must lower the price to sell additional units, which causes marginal revenue to be less than the price.

Question 11

In monopoly the demand curve is horizontal.

Accepted Answer

In a monopoly, the demand curve is downward sloping, indicating that the monopolist can sell more only by lowering the price.

Question 12

Abnormal profits occur when the average revenue is greater than average costs.

Accepted Answer

Abnormal profits, also known as economic profits or supernormal profits, occur when a firm's average revenue exceeds its average total costs, indicating that it is earning more than the minimum required to stay in business.

Question 13

In perfect competition there are barriers to entry.

Accepted Answer

In perfect competition, there are no barriers to entry, allowing new firms to enter the market freely.

Question 14

In a monopoly a profit maximising firm produces where marginal revenue equals marginal cost.

Accepted Answer

In a monopoly, a profit-maximizing firm determines its output level by producing where marginal revenue (MR) equals marginal cost (MC), which is the rule for maximizing profit applicable to all market structures.

Question 15

When a few firms dominate a market this is known as an _________.

Accepted Answer

The answer of When a few firms dominate a market...

Question 16

In monopolistic competition there are barriers to entry in the long run.

Accepted Answer

In monopolistic competition, there are no significant barriers to entry in the long run, allowing new firms to enter the market and compete.

Question 17

In the kinked demand curve what is assumed?
A) That a price cut will not be followed by rivals.
B) A price increase will be followed by rivals.
C) Rivals cooperate when setting prices.
D) Increasing the price will not be followed by rivals.

Accepted Answer

In the kinked demand curve model, it is assumed that if a firm raises its price, rivals will not follow, leading to a loss of market share for the firm that increased its price.

Question 18

A cartel occurs when firms collude.

Accepted Answer

A cartel occurs when firms in the same industry agree to collude on aspects such as prices, production quantities, or market shares, rather than competing against each other.

Question 19

Complete the sentence. In monopolistic competition…
A) There are many firms.
B) The products are all similar.
C) There are barriers to entry.
D) Firms produce where marginal revenue equals average revenue.

Accepted Answer

In monopolistic competition, there are many firms competing against each other, but unlike in perfect competition, each firm offers a product that is slightly different from the others.

Question 20

Four firms have a combined market share of around 20% each. This market is called what?
A) An oligopoly.
B) A monopoly.
C) Perfectly competitive.
D) Monopolistically competitive.

Accepted Answer

An oligopoly is characterized by a small number of firms that have a significant market share, which allows them to have considerable control over the market prices and outputs. In this scenario, with four firms each having around 20% market share, it fits the description of an oligopoly.

Quiz 8: Different Market Forms

Monopolists have a high market share. Market share measures: