Question 1

In the situation of imperfect competition, the relation between market price P and marginal revenue MR for each supplying firm is that:

Accepted Answer

In imperfect competition, a firm faces a downward-sloping demand curve. To sell additional units, the firm must lower the price, which applies to all units sold. Therefore, marginal revenue (MR) is less than the price (P) because the additional revenue generated by selling one more unit is less than the price at which that unit is sold.

Question 2

Imperfect competition prevails in an industry when what condition exists:

Accepted Answer

Imperfect competition prevails when individual sellers can affect the price of the product or service, such as in a monopolistic competition or an oligopoly. In perfect competition, no individual seller has the ability to affect price. Therefore, option B is the correct answer.

Question 3

Which of the following eliminates the possibility of perfect competition in a market?

Accepted Answer

In perfect competition, all firms face a horizontal demand curve, meaning they cannot influence the price of the product. If individual firms face a downward sloping demand curve, they have some market power and cannot be considered to be in perfect competition. The other options do not necessarily eliminate the possibility of perfect competition.

Question 4

A monopoly exists when:

Accepted Answer

A monopoly exists when a single seller has complete control over the industry and no close substitutes are available for consumers. This allows the monopolist to dictate prices without fear of competition.

Question 5

Use the following to answer questions :
Table 9-1 
-Consider the demand curve given in Table 9-1.If the imperfectly competitive firm is able to produce at any output level, then the price and quantity which maximize total revenue are:

Accepted Answer

The answer of Use the following to answer questions :
Table...

Question 6

A natural monopoly is:

Accepted Answer

A natural monopoly is a market where the industry's output can be efficiently produced only by a single firm due to factors such as economies of scale or access to a unique resource. While there may technically be other firms in the market, they are unable to compete efficiently with the dominant firm due to the high barriers to entry.

Question 7

If a firm finds out that its marginal revenue is greater than its marginal cost, it should:

Accepted Answer

If a firm finds out that its marginal revenue is greater than its marginal cost, it means that the firm can generate more revenue by producing and selling more units of its product. Therefore, the firm should increase production and sales to maximize its profits.

Question 8

Which of the following statements concerning the monopolist with the cost and demand curves shown in the figure below is true?

Accepted Answer

The answer of Which of the following statements concerning the...

Question 9

If you are the only mechanic in town which of the following is true about your demand curve?

Accepted Answer

The demand for the mechanic's services will likely exhibit a downward sloping curve, as customers are willing to pay less for additional units of repair services. However, it should be noted that being the only mechanic in town may also affect supply, as the mechanic may have limited capacity to service all customers' demands, particularly during busy times.

Question 10

A monopoly finds that, at its present level of output and sales, marginal revenue equals $5 and marginal cost is $4.10.Which of the following will maximize profits?

Accepted Answer

Since the marginal revenue is greater than the marginal cost ($5 > $4.10), the monopoly can increase its profit by producing more. Therefore, decreasing price and increasing output would be the best choice. This would allow the monopoly to sell more units at a slightly lower price, resulting in increased revenue and profits.

Question 11

Use the following to answer questions :
Table 9-1 
-Suppose an imperfect competitor faces the demand curve defined in Table 9-1, and its MC is constant at $2.00.If the firm is able to produce at any output level, then it maximizes profits at:

Accepted Answer

To maximize profits, the firm produces where marginal revenue equals marginal cost, which is at output level q = 12, where P = $4 (as shown in the table). At q = 12, MR = $4, which is also equal to MC = $2. At any output level above or below this, the firm earns less than maximum profits. Therefore, the best choice is B.

Question 12

To maximize profits or minimize losses (if the firm produces), a firm must be sure it is producing at an output where:

Accepted Answer

A firm must be producing where marginal revenue is equal to marginal cost in order to maximize profits or minimize losses. This is because producing one more unit will increase revenue by the amount of marginal revenue, but also increase costs by the amount of marginal cost. Therefore, only producing up to the point where marginal revenue equals marginal cost will result in the greatest possible profit.

Question 13

If a monopoly is attempting to maximize profits, which of the following, if any, should it attempt to do?

Accepted Answer

To maximize profits, a monopoly should produce at the quantity where marginal cost equals marginal revenue, which is not explicitly mentioned in any of the provided options. Options A, B, C, and D do not necessarily lead to profit maximization.

Question 14

Perfect competition differs from imperfect competition in that:

Accepted Answer

In perfect competition, each firm is a price taker and cannot affect market prices. In contrast, imperfect competition includes monopolistic competition, oligopoly, and monopoly, all of which have some degree of market power, allowing them to affect prices. The other options listed are not accurate differences between perfect and imperfect competition.

Question 15

If a firm's demand curve is horizontal, then the firm's marginal revenue is:

Accepted Answer

A horizontal demand curve implies that the firm can sell any quantity at the given market price. Therefore, the marginal revenue earned from selling an additional unit is equal to the market price, making it the same as the price of the product.

Question 16

Two possible reasons for the existence of an imperfectly competitive market are:

Accepted Answer

Increasing returns to scale mean that as production increases, unit costs decrease. This gives larger firms a cost advantage over smaller competitors, creating a barrier to entry and reducing competition. Barriers to entry can take various forms, such as legal regulations, technological requirements, or economies of scale. Together, increasing returns to scale and barriers to entry generate imperfect competition, where a limited number of large firms dominate the market.

Question 17

Imperfect competition does not mean "no competition.Many firms have rivals but are still in an imperfect competition industry.A rival wants to do which of the following:

Accepted Answer

A rival in an imperfect competition industry wants to do all of the three things - increase profits, increase market share, and advertise to shift out their demand curve. Imperfect competition means that firms have some degree of market power, and hence they can influence the market price and quantity. As such, firms want to maximize their profits, and one way to do that is by capturing a larger share of the market or by increasing the demand for their goods through advertising. Therefore, all of the choices are appropriate for a rival in an imperfect competition industry.

Question 18

An oligopoly exists when:

Accepted Answer

An oligopoly exists when a few sellers have complete control over the industry, which means they are able to influence prices and market conditions. This is in contrast to a perfectly competitive market, where there are many sellers and no one has control over the industry.

Question 19

If the firm described in the previous question has no fixed costs, its profits are:

Accepted Answer

Without fixed costs, profit is determined solely by the difference between total revenue and variable costs. The correct answer reflects the accurate calculation based on the provided data.

Question 20

A perfect competitor's output in the short run is the quantity that:

Accepted Answer

In the short run, a perfect competitor aims to maximize profits by producing the quantity of output where marginal cost (MC) equals marginal revenue (MR). This is because at this level of output, the firm is able to sell each unit of output for the market price (P) and produce it at the lowest cost possible. Therefore, choice A is correct as it sets MC = MR = P. Choices B, C, and D are incorrect as they do not necessarily lead to profit maximization in a perfect competition market.

Quiz 9: Imperfect Competition and Monopoly