Micro Test 2 (real test) Flashcards
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
all of these
In the perfectly competitive market, all firms in the market are assumed to be producing
identical products
Which of the following is a characteristic of a competitive price-taker market?
There are many firms in the market, each producing a small share of total market output
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
all of these
Which of the following BEST illustrates a perfectly competitive market?
soybean farmers
A firm in a price-taker market:
must take the price that is determined in the market
Profit is maximized when which of the following conditions occur
marginal revenue equals marginal cost
Which of the following is NOT associated with the monopoly market structure?
Many sellers
A monopoly is:
the only seller of a good for which there are no good substitutes in a market with high barriers to entry
Which of the following firms BEST fits the definition of a monopoly?
Local electric utility
A natural monopoly is a market where:
a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms
Which barrier to entry results in the creation of a natural monopoly?
Economics of scale
Both a perfectly competitive firm and a monopolist:
maximize profit by setting marginal cost equal marginal revenue
Which of the following correctly describes price discrimination?
Selling the same product to different people for different prices
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:
arbitrage
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
all of the above are examples of arbitrage
Which of the following MOST closely approximates the conditions of a monopolistically competitive market
the restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers
Which of the following is the BEST example of a monopolistic competitor?
Diet centers
A monopolistically competitive market is characterized by:
many small sellers selling a differentiated product
Supporters of advertising claim that it:
- increases the variety of products
- attacks established brand loyalties
- allows new firms to compete
all of these
One key characteristic that is distinctive of an oligopoly market is that:
the decisions of one seller often influences the price of products, the output, and the profits of rival firms
The industry that MOST closely approximates the conditions of the oligopoly model is:
Airlines
Mutual interdependence among firms in an oligopoly means that:
it is difficult to know how firms will react to decisions of rivals
When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:
mutual interdependence
A cartel is:
a joining of firms for the purpose of fixing prices and controlling output
A perfectly competitive market is characterized by the free entry and exit of firms
TRUE
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
TRUE
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
FALSE
The two theoretical extremes of the market structure spectrum are occupied at one end by perfect competition and on the other end by monopoly
TRUE
A perfectly competitive firm is price taker, but a monoplu is a price maker
TRUE
A monopolist always earns an economic profit
FALSE
Price discrimination often permits some consumers who otherwise would be excluded from a market to buy a good or service
TRUE
In a monopolistically competitive market like retail trade, firms can easily enter and exit the market
TRUE
Cartels are legal in the United States
FALSE
Oligopolies have few sellers and difficult entry
TRUE
