2. To which of the above four categories do the following apply to the member firms? (There can be more than one market category in each case)

   1. Firms face a downward sloping demand curve.

   2. New firms can freely enter the industry.

   3. Firms produce a homogeneous product.

   4. Firms are price takers.

   5. Firms face an elastic demand (but less than infinity) at the profit-maximizing output.

   6. Firms will produce where MR = MC if they wish to maximize profits.

   7. There is perfect knowledge on the part of consumers of price and product quality.

3. In which of the four categories would you place each of the following? (It is possible in some cases that part of the industry could be in one category and part in another: if so name both)

   1. A village post office

   2. Restaurants in large town

   3. Banks

   4. Hi-fi manufacturers

   5. Producers of barley

   6. Water supply

   7. Local buses

   8. The market for foreign currency

4. Which of the following are characteristics of oligopoly? (There may be more than one correct answer)

   1. There are just a few firms that dominate the industry.

   2. There are few if any barriers to the entry of new firms into the industry.

   3. The firms may produce either a homogeneous or a differentiated product.

   4. The firms face downward sloping demand curves.

   5. There is little point in advertising because there are so few firms.

   6. Oligopolists tend to take into account the actions and reactions of other firms.

5. Under which of the following circumstances is collusion likely to break down? (There may be more than one correct answer)

   1. There is a reduction in barriers to international trade.

   2. The market becomes more stable.

   3. One of the firms develops a new cost-saving technique.

   4. One of the firms becomes dominant in the industry.

   5. The number of firms in the industry decreases.

Question Bank Firms: Market structure

Q1. Which of the following is NOT a characteristic of a perfect competitive market? (Select one answer)

(a) All of these answers are characteristics of a competitive market

(b) There are many buyers and sellers in the market

(c) The goods offered for sale are largely the same

(d) Firms generate small but positive economic profits in the long run

(e) Firms can freely enter or exit the market

Q2. Which of the following markets would most closely satisfy the requirements for a competitive market? (Select one answer)

(a) electricity

(b) cable television

(c) cola

(d) milk

(e) All of these answers represent competitive markets

Q3. If firms in the toothpaste industry have the following market shares, which market structure would best describe the industry?

Market share (% of market) Toothpaste 18.7 Dent paste 14.3 Shin bright 11.6 Brighter than white 8.8 Pasty stuff 7.4 I can't believe it's not toothpaste 9.4

Others 29.8 (Select one answer)

(a) Perfect competition

(b) Monopolistic competition

(c) Oligopoly

(d) Monopoly

Q4. The market for hand tools (such as hammers and screwdrivers) is dominated by Draper, Stanley, and Craftsman. This market is best described as (Select one answer)

(a) monopolistically competitive

(b) a monopoly

(c) an oligopoly

(d) competitive

Q5. Which of the following are NOT conditions of perfect competition? (Select one or more answers)

(a) A large number of firms

(b) Similar products

(c) Perfect mobility of factors

(d) Freedom of entry and exit into and out of the market

Q6. A market structure in which many firms sell products that are similar but not identical is known as (Select one answer)

(a) monopolistic competition

(b) monopoly

(c) perfect competition

(d) oligopoly

Q7. When an oligopolist individually chooses its level of production to maximize its profits, it charges a price that is (Select one answer)

(a) more than the price charged by either monopoly or a monopolistically competitive market

(b) less than the price charged by either monopoly or a monopolistically competitive market

(c) more than the price charged by a monopoly and less than the price charged by a monopolistictically competitive market

(d) less than the price charged by a monopoly and more than the price charged by a monopolistically competitive market

Q8. Fill in the blanks in the paragraph below to give a good description of the level of efficiency in a perfectly competitive market. (Please type equations in capitals and with no spaces)

(Fill in your answer)

MC equals AC - allocative - MC equal MR - MC equals MR equals AC equals AR - productive - normal - AC equals AR - supernormal - MC equals AR

In perfect competition in the long-run there will be no   profit and it will be true that   . The result of this is that there will be the optimum allocation of resources. Since   we know that the firms are maximizing profits, but because   the level of profit will be just   profit. Because   we know that the firms must be producing at the minimum point of the average cost curve and so there will be optimum   efficiency. There will also be optimum   efficiency as it is also true that   . This means that the cost of the last unit is exactly equal to the price consumers are willing to pay for it and so the right goods are being sold to the right people at the right price.

MC – marginal cost

MR – marginal revenue

AC – average cost

AR – average rate

Q9. Which of the following is NOT a characteristic of a perfectly competitive market? (Select one answer)

(a) free entry and exit

(b) one seller

(c) many sellers

(d) differentiated products

Q10. Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly? (Select one answer)

(a) The monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve

(b) The monopolist charges a price above marginal cost while the monopolistic competitor charges a price equal to marginal cost

(c) The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run

(d) Both the monopolist and the monopolistic competitor operate at the efficient scale

Q11. As the number of sellers in an oligopoly increases, (Select one answer)

(a) output in the market tends to fall because each firm must cut back on production

(b) the price in the market moves further from marginal cost

(c) collusion is more likely to occur because a larger number of firms can place pressure on any firm that defects

(d) the price in the market moves closer to marginal cost

Q12. Collusion is difficult for an oligopoly to maintain (Select one answer)

(a) all of these answers

(b) if additional firms enter of the oligopoly

(c) because antitrust laws (also known as competition laws) make collusion illegal

(d) because, in the case of oligopoly, self-interest is in conflict with cooperation

Task:

Find the way to the correct answer (A, B, C, D)