Question 1

Which of the following is an example of a natural monopoly?
A) a firm whose good has only one close substitute
B) a firm whose average total cost falls as output increases
C) a firm whose sales exceed the total of its competition
D) a firm that owns all of the raw materials it uses
E) a firm granted exclusive producing and marketing rights by the government

Accepted Answer

A natural monopoly occurs when a firm experiences decreasing average total costs over a range of outputs, typically due to high fixed costs and economies of scale, making it more efficient for a single firm to serve the entire market.

Question 2

Think cross elasticity. Suppose that the price of cod increases from $10 to $12. If perch and cod belong to the same market and consumers had demanded 20 perch before the increase in the price of cod, they will now demand
A) 34 perch
B) 8 perch
C) 24 perch
D) no more than 28 perch
E) at least 32 perch

Accepted Answer

If perch and cod are substitutes, an increase in the price of cod will lead to an increase in the demand for perch. The cross elasticity of demand suggests that consumers will demand more perch, potentially at least 32, as they switch from cod to perch.

Question 3

There are fewest problems in distinguishing between which two market structures?
A) oligopoly and monopolistic competition
B) monopolistic competition and perfect competition
C) monopoly and perfect competition
D) oligopoly and monopoly
E) oligopoly and perfect competition

Accepted Answer

Monopoly and perfect competition are at opposite ends of the market structure spectrum, making them the easiest to distinguish. A monopoly is characterized by a single seller with no close substitutes for the product, while perfect competition involves many sellers with identical products.

Question 4

Most firms on the Fortune 500 list are
A) monopolies
B) monopolistically competitive
C) oligopolies
D) imperfectly competitive
E) perfectly competitive

Accepted Answer

Most firms on the Fortune 500 list are oligopolies, as they operate in industries where a few large firms dominate the market, allowing them to exert significant control over prices and output.

Question 5

Entry into an oligopoly is
A) possible for anyone
B) time consuming
C) relatively easy
D) impossible
E) relatively difficult

Accepted Answer

Entry into an oligopoly is relatively difficult due to high barriers to entry such as significant initial investment, access to technology, and regulatory hurdles.

Question 6

Which characteristics best describe oligopolies?
A) low fixed costs
B) mutual interdependence
C) very large firms
D) identical pricing
E) many firms

Accepted Answer

Oligopolies are characterized by mutual interdependence, where a few large firms dominate the market and each firm's decisions affect the others.

Question 7

Which characteristic does not help define a monopoly?
A) no close substitutes
B) price-making behavior
C) firm is the industry
D) mutual interdependence
E) firm's demand curve is market demand curve

Accepted Answer

Mutual interdependence is a characteristic of oligopolistic markets, not monopolies. In a monopoly, there is only one firm dominating the market without any competitors, so there's no need for mutual interdependence.

Question 8

Natural monopolies result from the peculiar relationship between
A) government regulation and the ownership of scarce resources
B) threats to potential entrants and the price of the product
C) the size of market demand and the firm's cost structure
D) product differentiation and the ownership of patents
E) the firm's advertising campaigns and its labor policies

Accepted Answer

Natural monopolies occur when a single firm can supply a product or service to an entire market at a lower cost than what it would be if there were multiple firms, due to economies of scale related to the firm's cost structure and the size of market demand.

Question 9

Baking soda, a common household item, is produced from a mineral deposit called sod aash. There is only one soda ash deposit in the United States, and it is owned by the Leg and Plier Baking Soda Company. It is reasonable to describe this firm as a(n)
A) unbalanced oligopoly
B) balanced oligopoly
C) acquisitive oligopoly
D) natural monopoly
E) unnatural monopoly

Accepted Answer

The Leg and Plier Baking Soda Company is described as a natural monopoly because it is the sole owner and producer of baking soda from the only soda ash deposit in the United States, indicating it controls the market due to its unique access to a natural resource.

Question 10

Suppose there are only two steel firms in the steel industry and their prices are equal to or very close to their ATCs. This circumstance suggests that
A) steel firms are not profit maximizing
B) steel has no close substitutes
C) the demand for steel is weak
D) quantity supplied is less than quantity demanded at the market prices
E) close substitutes are produced in other industries

Accepted Answer

The answer of Suppose there are only two steel firms...

Question 11

Suppose there is only one firm producing steel, one producing fiberglass, and one producing concrete. If steel and concrete are considered substitute goods in construction, while steel and fiberglass are considered substitute goods in auto production, there is no monopoly in the
A) steel market
B) fiberglass market
C) concrete market
D) construction market
E) boat market

Accepted Answer

The answer of Suppose there is only one firm producing...

Question 12

Coca-Cola has a secret formula that has never been copied. This is because Coca-Cola
A) is an unbalanced oligopoly
B) has a trademark that cannot be copied
C) has patent rights on the formula
D) has exclusive access to formula information
E) is a natural monopoly

Accepted Answer

Coca-Cola's secret formula has never been copied because the company has exclusive access to the formula information, keeping it a closely guarded secret.

Question 13

Monopoly rights provided by patents are awarded to
A) encourage profit making
B) guarantee competitive prices
C) encourage competition
D) the "first come, first served"
E) encourage research and development

Accepted Answer

Patents provide monopoly rights to encourage research and development by allowing inventors to potentially recoup their investment and profit from their innovations.

Question 14

Andrew Carnegie, the first U.S. steel mogul, built his empire by
A) patenting each new type of steel
B) owning all of the U.S. iron ore deposits
C) being the most efficient, that is, having the lowest ATC
D) buying up his competitors
E) enlisting the protection of the government

Accepted Answer

Carnegie bought up his competitors to create a monopoly in the steel industry.

Question 15

Clorox Bleach and generic brands have the exact same proportions of chlorine and other active ingredients. The reason that people continue to purchase Clorox at twice the price of the generic brand is the
A) price elasticity of demand classifies them as belonging to the same market
B) low cross elasticity between Clorox and the generic brand
C) high cross elasticity between Clorox and the generic brand
D) perceived differences on the part of consumers
E) income elasticity of demand is higher for the Clorox brand

Accepted Answer

The key reason people continue to purchase Clorox despite its higher price, compared to generic brands with the same active ingredients, is due to perceived differences. Consumers may believe Clorox is of higher quality or more effective, even if the chemical composition is identical. This perception drives their purchasing decision, not the actual product differentiation.

Question 16

Some people refuse to buy Japanese cars because they believe it is anti-American. Others refuse to buy American cars because they believe that Japanese cars are superior. In this highly competitive market, the Mitsubishi Eclipse and Eagle Talon, which have identical engines, transmissions, bodies and paint, are a good example of
A) goods belonging to two separate markets
B) complementary goods
C) perfect competition
D) product differentiation
E) barriers to entry

Accepted Answer

The Mitsubishi Eclipse and Eagle Talon are examples of product differentiation because they are essentially the same product marketed under different brand names, appealing to different consumer preferences or brand loyalties.

Question 17

The reason why firms in perfect competition do not advertise is because
A) their demand curves are all downward sloping and if they sell more it would have to be at a lower price
B) they differentiate themselves, as with milk
C) they are typically small in size and cannot produce for a wider market
D) there is no entry into the industry
E) there is no product differentiation among the goods produced

Accepted Answer

In perfect competition, firms produce identical products, meaning there is no product differentiation. This makes advertising unnecessary since consumers perceive products from different firms as perfect substitutes.

Question 18

Suppose a monopolist chooses to advertise its good and its own demand curve shifts to the right, then we know that
A) the industry's demand curve shifts in precisely the same way
B) its competitors share some of the benefits of the advertising
C) the monopolist's cost curves will shift to accommodate the shift in demand
D) the price of substitute goods will fall
E) consumers are turned off by the advertising and buy less at every price

Accepted Answer

The answer of Suppose a monopolist chooses to advertise its...

Question 19

In perfect competition, the buyers are usually looking for
A) easy entry
B) familiar brands
C) higher-quality goods
D) volume discounts
E) the lowest price

Accepted Answer

In perfect competition, numerous buyers and sellers exist, and products are homogeneous, leading buyers to seek the lowest price since they can easily substitute products from one seller with those from another without any loss in value or utility.

Question 20

In a perfectly competitive market, a firm that raises its price when its competitors do not
A) must have a differentiated product
B) must have relatively high costs and therefore must raise price to compensate
C) sells no goods
D) gains market share
E) will become a monopolist eventually

Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot set their own prices above the market equilibrium without losing all their customers. If a firm raises its price while others do not, consumers will simply buy from the competitors, resulting in the firm selling no goods.

Quiz 10: Identifying Markets and Market Structures

Which of the following is an example of a natural monopoly?

Think cross elasticity. Suppose that the price of cod increases from $10 to $12. If perch and cod belong to the same market and consumers had demanded 20 perch before the increase in the price of cod, they will now demand

There are fewest problems in distinguishing between which two market structures?

Most firms on the Fortune 500 list are

Entry into an oligopoly is

Which characteristics best describe oligopolies?

Which characteristic does not help define a monopoly?

Natural monopolies result from the peculiar relationship between

Baking soda, a common household item, is produced from a mineral deposit called sod aash. There is only one soda ash deposit in the United States, and it is owned by the Leg and Plier Baking Soda Company. It is reasonable to describe this firm as a(n)

Suppose there are only two steel firms in the steel industry and their prices are equal to or very close to their ATCs. This circumstance suggests that

Suppose there is only one firm producing steel, one producing fiberglass, and one producing concrete. If steel and concrete are considered substitute goods in construction, while steel and fiberglass are considered substitute goods in auto production, there is no monopoly in the

Coca-Cola has a secret formula that has never been copied. This is because Coca-Cola

Monopoly rights provided by patents are awarded to

Andrew Carnegie, the first U.S. steel mogul, built his empire by

Clorox Bleach and generic brands have the exact same proportions of chlorine and other active ingredients. The reason that people continue to purchase Clorox at twice the price of the generic brand is the

The reason why firms in perfect competition do not advertise is because

Suppose a monopolist chooses to advertise its good and its own demand curve shifts to the right, then we know that

In perfect competition, the buyers are usually looking for

In a perfectly competitive market, a firm that raises its price when its competitors do not