Question 1

Perfect completion means _____ rivalry

Accepted Answer

Perfect competition implies a market structure where there is a complete absence of rivalry among individual firms because no single firm has the power to influence market conditions.

Question 2

_______ is situation in which a single company or group owns all or nearly all of the market for a given type of product or service.

Accepted Answer

A monopoly exists when a single company or entity controls the entire market for a product or service, eliminating competition.

Question 3

_______ is situation in which a particular market is controlled by a small group of firms.

Accepted Answer

An oligopoly is a market structure in which a few firms dominate. When a market is shared between a few firms, it is considered to be highly concentrated. Although only a few firms dominate, it is possible that many small firms may also operate in the market.

Question 4

________ is a market in which there are only a few large buyers for a product or service.

Accepted Answer

Oligopsony is a market condition in which there are only a few large buyers for a product or service, giving these buyers significant power over sellers.

Question 5

________ is one organization created from a formal agreement between a group of producers of a good or service, to regulate supply in an effort to regulate or manipulate prices.

Accepted Answer

A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. Cartels are typically involved in the same industry and agree to control prices, marketing, and production.

Question 6

Which of the following statements is true

Accepted Answer

Oligopolies typically sell more output than monopolies because they face competition from a few other firms, unlike a monopoly, which is the sole provider of a good or service. This competition can lead to more output being produced and sold in an oligopolistic market compared to a monopolistic one.

Question 7

The larger the number of firms in an oligopoly, the ________ the price and the ________ the output of the industry.

Accepted Answer

In an oligopoly, as the number of firms increases, competition among them also increases. This tends to lower the price of goods or services due to competitive pressures. Additionally, with more firms, the total output of the industry is likely to increase as each firm contributes to the overall production.

Question 8

Factors of production are:

Accepted Answer

Factors of production refer to the inputs used in the creation of goods or services in order to make an economic profit. These typically include land, labor, capital, and entrepreneurship.

Question 9

The property of diminishing marginal product applies:

Accepted Answer

The property of diminishing marginal product states that as more units of a variable input (like labor) are added to fixed amounts of other inputs (like capital), the additional output produced by each new unit of input will eventually decrease. This concept applies not only to workers but to any variable inputs and is specifically relevant in the short run, where at least one input (like capital) is fixed.

Question 10

All of the following will cause the value of the marginal product of labor to increase, EXCEPT:

Accepted Answer

The value of the marginal product of labor increases with an increase in the price of the good (A), improvements in production technology (B), and an increase in other factors of production (D). However, an increase in the number of workers (C) does not necessarily increase the value of the marginal product of labor; it could decrease due to the law of diminishing returns.

Question 11

If the supply curve for labor is backward bending, and if the wage of a worker increases, she might choose to work:

Accepted Answer

The backward bending supply curve of labor illustrates that as wages increase beyond a certain point, workers may choose to work fewer hours because they can maintain their desired income level while enjoying more leisure time.

Question 12

If many students choose to study to become accountants, when all of these students eventually graduate, we can expect accountant's wages to ________, and the equilibrium number of accountants will ________

Accepted Answer

When many students choose to study to become accountants and eventually graduate, the supply of accountants increases. According to the law of supply and demand, an increase in supply, with demand remaining constant, typically leads to a decrease in price (wages, in this case). Therefore, we can expect the wages for accountants to drop and the equilibrium number of accountants to increase as the market adjusts to the higher supply.

Question 13

If there is a permanent increase in the demand for cars, car manufacturers will want to hire ________ workers, which will cause wages in the industry to ________.

Accepted Answer

When there is a permanent increase in demand for cars, manufacturers will need to produce more cars to meet this demand, leading them to hire more workers. As the demand for labor increases, the wages are likely to rise due to the increased competition for skilled workers.

Question 14

As firms gradually acquire ever more technology, machinery and equipment, workers' productivity gradually ________, and workers wages gradually ________.

Accepted Answer

As firms acquire more technology, machinery, and equipment, workers' productivity increases because they can produce more efficiently. As productivity increases, workers' wages also tend to increase because they are able to contribute more value to the firm.

Question 15

The price paid for any factor of production tends to be equal to:

Accepted Answer

The price paid for any factor of production tends to be equal to the value of the marginal product of that input. This principle is based on the economic theory that firms will pay for an input up to the point where the cost of the input equals the additional revenue generated by that input, known as its marginal product.

Question 16

In a perfectly competitive market

Accepted Answer

In a perfectly competitive market, firms do not set their own prices due to the market's competitive nature and the homogeneity of products. There are many firms selling identical (homogeneous) products, not unique ones, and the exit of a single firm typically does not affect the market equilibrium price due to the large number of firms.

Question 17

The three primary characteristics of a perfectly competitive market are

Accepted Answer

The three primary characteristics of a perfectly competitive market include homogenous (identical) products, firms being price takers (they accept the market price as given), and free entry and exit from the market, which are all described in option B.

Question 18

Microeconomic theory assumes that all firms maximize profits because

Accepted Answer

Microeconomic theory posits that firms aim to maximize profits as a fundamental principle. While not all managers may always align their goals with investors, the underlying assumption is that profit maximization is a key driver for business decisions. Smaller firms are particularly focused on profit due to their scale and resource constraints, making it a dominant factor in their decision-making. Additionally, for larger firms, if managers consistently make decisions that do not prioritize profit maximization, they risk intervention from shareholders or the board of directors, who have the power to replace them to ensure the firm's profitability and health. This rationale combines both the practical considerations of smaller firms (B) and the governance mechanisms in place for larger firms (C), making option D the correct answer.

Question 19

Profits are maximized when the firm

Accepted Answer

Profits are maximized for a firm when it produces at an output level where marginal revenue (MR) equals marginal cost (MC). This is a fundamental principle of microeconomics, indicating the most efficient point of production for profit maximization.

Question 20

The demand curve for a perfectly competitive firm

Accepted Answer

In a perfectly competitive market, each firm faces a horizontal demand curve at the market price, indicating that the firm can sell any quantity of its product at the prevailing market price, thus making the demand curve perfectly elastic.

Quiz 2: Principles of Market Structures and Microeconomic Theory