Chapter 8 MCQ

Question 1

Monopolists have market power and do not have to live by the law of demand. T  F

Answer 1

False. Monopolist’s market power is limited by what buyers are willing and able to pay.

Question 2

A worker who is the only one with a particular skill in her community has a monopoly over that skilled labour in her community. T  F

Answer 2

True. The only seller can be in an output or input market.

Question 3

The only seller of a product or service with no close substitutes is a price maker. T  F

Answer 3

True. But even monopoly price-makers must live by the law of demand.

Question 4

Sellers always prefer selling at higher prices. T  F

Answer 4

False. A seller may earn more revenues by cutting prices instead of raising them if demand is elastic.

Question 5

Businesses prefer to have a monopoly over perfect competition. T  F

Answer 5

True. Businesses prefer to be price makers rather than price takers.

Question 6

Of all market structures, barriers to entry are highest for monopoly. T  F

Answer 6

True. Barriers create the monopoly.

Question 7

If McDonald’ s were to buy Wendy’ s, this would reduce McDonald’s economies of scale. T  F

Answer 7

False. This would increase economies of scale.

Question 8

The higher the market power, the lower the elasticity of demand. T  F

Answer 8

True. Higher pricing power comes from more inelastic demand.

Question 9

In monopolistic competition there are many perfect substitutes. T  F

Answer 9

False. There are differentiated substitutes.

Question 10

Businesses in monopolistic competition have some pricing power. T  F

Answer 10

True. Because of product differentiation.

Question 11

The elasticity of demand is higher for oligopoly than for monopolistic competition. T  F

Answer 11

False. Consumers are more sensitive to price changes in monopolistic competition because there are more businesses selling similar substitutes.

Question 12

The gaming hardware industry is an example of monopolistic competition. T  F

Answer 12

False. The gaming industry is an oligopoly. A few companies — Nintendo, Microsoft, and Sony — control the market.

Question 13

Dreams of monopoly market power and profits generate competitive actions that produce outcomes resembling perfect competition. T  F

Answer 13

True. Businesses must at least match the competitive actions of rivals.

Question 14

Competition is about figuring out ways to match your rival suppliers in the market. T  F

Answer 14

False. Businesses look for new ways to beat rivals, not just match them.

Question 15

Every choice you make, every action you take happens in the context of a market. T  F

Answer 15

True.

Question 16

A monopolist

is the only seller of a product or service.
is a price maker.
has no close substitutes.
is all of the above.

Answer 16

d) Definitions.

Question 17

The trade-off to setting a higher price is

higher sales.
lower sales.
higher revenues.
nothing — there is no trade-off.

Answer 17

b) Even price-makers must live by the law of demand.

Question 18

he effect on the nearby farming industry of the “buy and eat local” movement will

make it more competitive.

increase the number of substitutes available.

reduce the number of substitutes available.

all of the above.

Answer 18

c) Narrow the definition of the market.

Question 19

Monopolies can exist even though economic profits are supposed to attract entry from new businesses, if there are

economies of scale.

legal barriers that prevent new businesses from entering.

economic barriers that prevent new businesses from entering.

all of the above.

Answer 19

.

d) All are barriers to entry.

Question 20

Patents and copyrights increase market power by

increasing the number of buyers.

increasing the number of sellers.

preventing other businesses from competing.

making it easier for other businesses to compete.

Answer 20

c) Barriers to entry.

Question 21

Which of the following could receive a patent?

a song
a poem
an iPhone
all of the above

Answer 21

c) Songs and poems get copyrights, products get patents

Question 22

Which of the following is not a market structure?

monopoly
oligopoly
competitopoly
perfect competition

Answer 22

c) A made-up, not real, word.

Question 23

Which market structure has the lowest barriers to entry?

monopoly
oligopoly
monopolistic competition
perfect competition

Answer 23

d) No barriers to entry.

Question 24

Which market structure has the highest elasticity of demand?

monopoly
oligopoly
monopolistic competition
perfect competition

Answer 24

d) More elastic demand = lower pricing power.

Question 25

Which market structure has the most number of sellers?

monopoly
oligopoly
monopolistic competition
perfect competition

Answer 25

d) Great many sellers producing identical products.

Question 26

Which market structure does not have pricing power?

monopoly
oligopoly
monopolistic competition
perfect competition

Answer 26

d) All businesses are price takers. Zero pricing power.

Question 27

Which market structure does not have close substitutes?

monopoly
oligopoly
monopolistic competition
perfect competition

Answer 27

a) Definition.

Question 28

How do businesses compete?

lower prices
better product quality
better service quality
all of the above

Answer 28

d) Active attempts of creative destruction.

Question 29

Advertising

makes demand more elastic.
makes demand more inelastic.
reduces demand for a product or service.
does all of the above.

Answer 29

b) Creates product differentiation, reducing consumer willingness to substitute other products or services.

Question 30

Robotic assembly lines reduce the jobs available for assembly-line workers. This phenomenon is called

karma.
destructive creationism.
creative destruction.
the handmaid’s tale.

Answer 30

c) Improve living standards for all, but destroy less productive production methods.