Micro Test 2 (real test)

Question 1

Market structure is defined as the:

• number of firms in each industry
• similarity of the product sold
• ease of entry in to and exit from the market

Answer 1

all of these

Question 2

In the perfectly competitive market, all firms in the market are assumed to be producing

Answer 2

identical products

Question 3

Which of the following is a characteristic of a competitive price-taker market?

Answer 3

There are many firms in the market, each producing a small share of total market output

Question 4

Perfect competition is defined as market structure in which:

• there are many small sellers
• the product is homogenous
• it is very easy for firms ot enter or exit the market

Answer 4

all of these

Question 5

Which of the following BEST illustrates a perfectly competitive market?

Answer 5

soybean farmers

Question 6

A firm in a price-taker market:

Answer 6

must take the price that is determined in the market

Question 7

Profit is maximized when which of the following conditions occur

Answer 7

marginal revenue equals marginal cost

Question 8

Which of the following is NOT associated with the monopoly market structure?

Answer 8

Many sellers

Question 9

A monopoly is:

Answer 9

the only seller of a good for which there are no good substitutes in a market with high barriers to entry

Question 10

Which of the following firms BEST fits the definition of a monopoly?

Answer 10

Local electric utility

Question 11

A natural monopoly is a market where:

Answer 11

a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms

Question 12

Which barrier to entry results in the creation of a natural monopoly?

Answer 12

Economics of scale

Question 13

Both a perfectly competitive firm and a monopolist:

Answer 13

maximize profit by setting marginal cost equal marginal revenue

Question 14

Which of the following correctly describes price discrimination?

Answer 14

Selling the same product to different people for different prices

Question 15

The act of buying a commodity in one market at a lower price and selling it in another market at a higher price is known as:

Answer 15

arbitrage

Question 16

Which of the following represents an arbitrage transaction?

• traders buy silks where they are abundant and cheap, and haul them along a trial to another place where they would be quite scarce and valued
• a trader buys a block of government bonds in one market where it is temporarily provide below where it can be immediately record in a different market
• someone buys a block of Final Four tickets and scalp them at the game
• a senior citizen buys a block of theater tickets at a senior discount and scalps them to teenagers behind the theater

Answer 16

all of the above are examples of arbitrage

Question 17

Which of the following MOST closely approximates the conditions of a monopolistically competitive market

Answer 17

the restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers

Question 18

Which of the following is the BEST example of a monopolistic competitor?

Answer 18

Diet centers

Question 19

A monopolistically competitive market is characterized by:

Answer 19

many small sellers selling a differentiated product

Question 20

Supporters of advertising claim that it:

• increases the variety of products
• attacks established brand loyalties
• allows new firms to compete

Answer 20

all of these

Question 21

One key characteristic that is distinctive of an oligopoly market is that:

Answer 21

the decisions of one seller often influences the price of products, the output, and the profits of rival firms

Question 22

The industry that MOST closely approximates the conditions of the oligopoly model is:

Answer 22

Airlines

Question 23

Mutual interdependence among firms in an oligopoly means that:

Answer 23

it is difficult to know how firms will react to decisions of rivals

Question 24

When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:

Answer 24

mutual interdependence

Question 25

A cartel is:

Answer 25

a joining of firms for the purpose of fixing prices and controlling output

Question 26

A perfectly competitive market is characterized by the free entry and exit of firms

Answer 26

TRUE

Question 27

In the short run, the profit maximizing (or minimizing) quantity of output for any firm to produce exists at that output level at which marginal revenue equals marginal cost

Answer 27

TRUE

Question 28

If a fim is producing an output level at which marginal revenue exceeds marginal cost in the short run, the firm will increase profits by reducing its output level

Answer 28

FALSE

Question 29

The two theoretical extremes of the market structure spectrum are occupied at one end by perfect competition and on the other end by monopoly

Answer 29

TRUE

Question 30

A perfectly competitive firm is price taker, but a monoplu is a price maker

Answer 30

TRUE

Question 31

A monopolist always earns an economic profit

Answer 31

FALSE

Question 32

Price discrimination often permits some consumers who otherwise would be excluded from a market to buy a good or service

Answer 32

TRUE

Question 33

In a monopolistically competitive market like retail trade, firms can easily enter and exit the market

Answer 33

TRUE

Question 34

Cartels are legal in the United States

Answer 34

FALSE

Question 35

Oligopolies have few sellers and difficult entry

Answer 35

TRUE