Chapter 5

Question 1

Which of the following is a basic characteristic of perfect competition?

Answer 1

a large number of buyers and sellers

Question 2

Which of the following industries most closely resembles perfect competition?

Answer 2

agriculture

Question 3

Monopolistic competition resembles perfect competition to the extent that:

Answer 3

entry barriers are either weak or non-existent in both

Question 4

An industry composed of three firms, each of which considers the potential reactions of its rivals in making pricing decisions, yet is not concerned with the potential entry of other firms, can best be described as:

Answer 4

an oligopoly

Question 5

Which of the following industries most closely approximates a monopoly?

Answer 5

a public utility

Question 6

In which of the following market structures is the entry of new businesses the most difficult?

Answer 6

monopoly

Question 7

Entry barriers can be the result of:

Answer 7

legal obstacles

Question 8

An entry barrier that involves cost advantages is:

Answer 8

market experience

Question 9

An entry barrier that involves illegal pricing strategies is:

Answer 9

predatory pricing

Question 10

A business’s market power will be greater if its:

Answer 10

size is large in relation to its industry

Question 11

The type of market in which businesses possess the least market power is a

Answer 11

perfectly competitive market, as each business is a price-taker

Question 12

A perfectly competitive seller is:

Answer 12

a price-taker

Question 13

The demand curve of an individual perfectly competitive business is:

Answer 13

horizontal at a price set by the forces of market supply and demand

Question 14

The shape of the demand curve faced by an individual business in a perfectly competitive market is the result of:

Answer 14

the business’s inability to affect price

Question 15

Price is constant or “given” to the individual business selling in a perfectly competitive market because:

Answer 15

each seller is a price-taker

Question 16

A perfectly competitive business’s demand curve is a(n):

Answer 16

straight line parallel to the horizontal axis

Question 17

For a perfectly competitive business, total revenue:

Answer 17

increases by a constant dollar amount as output rises

Question 18

A perfectly competitive business’s average revenue equals:

Answer 18

its marginal revenue

Question 19

Marginal revenue may be defined as the:

Answer 19

change in total revenue associated with the sale of one more unit of output

Question 20

If a business in a perfectly competitive industry is confronted with an equilibrium price of $5, its marginal revenue:

Answer 20

will also be $5