Economics Test

A differentiated product has many perfect substitutes. (T or F)

False

A differentiated product has no close substitutes. (T or F)

False

Monopolies are guaranteed to earn economic profit. (T or F)

False

Monopolies have perfect inelastic demand for the product sold. (T or F)

False

Patents enable a firm to be a permanent monopoly. (T or F)

False

what percent would best indicate a perfectly competitive industry in a four-firm concentration ratio?

0.25 Percent

What four-firm concentration ratios is consistent with monopolistic competition?

25 Percent

What is market called when it has only one supplier?

A Monopoly

A barrier to entry that is an exclusive right granted to the author or composer of a literary, musical, dramatic, or artistic work is called what?

A copyright

If technology for producing a good enables one firm to meet the entire market demand at a lower price than two or more firm could, than that firm has..?

A natural monopoly

What kind of firm cannot influence the price of the product it sells?

A price taking firm

What is an example of monopolistically competitive industry?

Colleges and Universities

What is possible in an industry with a large number of firms?

Collusion is impossible.

what happens if a monopolistically competitive seller can convince buyers that its product is better quality and value than products sold by rival firms? (3 things)

Demand increases. the firm gains more control over its price. demand becomes more inelastic.

As the degree of product differentiation increases among the products sold in a monopolistically competitive industry, what happens?

Each seller's demand becomes more inelastic

What is an example of a perfectly competitive market?

Farming

What is a difference between perfect competition and monopolistic competition?

Firms in monopolistic competition compete on theirs products price as well as its quality and marketing.

If you find the percentage of the value of sales accounted for by the four largest firms in an industry than you have found the what?

Four- Firm concentration ratio

The market type known as perfect competition is

Highly competitive and firms find it impossible to earn an economic profit in the long run

In Perfect Competition, a firm maximizes profit in the short run by deciding... ?

How much out put to produce

What is the difference between perfect competition and monopolistic competition?

In perfect competition, firms produce identical goods. While monopolistic competition firms produce slightly different goods.

Ownership of a necessary input creates what type of barrier to entry?

Legal barrier to entry

What market type has a large number of firms that sell similar but slightly different products?

Monopolistic competition

an industry with a large number of firms, differentiated products, and free entry and exit is called what?

Monopolistic competition.

What market type has the fewest number of firms?

Monopoly

What is a good example of a natural monopoly good?

Natural Gas

What are some examples of product differentiation in monopolistic competition? (3 things)

New and improved packaging, acceptance of more credit cards than competition, location of the retail store.

How many firms compete in an oligopoly?

Only a few

Which of the following market types has all firms selling products so identical that buyers don't care from which firm they buy?

Perfect competition

What is a good example of a natural monopoly?

The cable company in your hometown

A large number of sellers all selling an identical product implies what?

The inability of any seller to change the price of a product

What is an example of a perfectly competitive firms short run decision?

The profit maximizing level of output

In monopolistic competition, each firm supplies a small part of the market. This occurs because...?

There are a large number of firms.

If the demand for a sellers product is elastic, what does that mean? (3 things)

There is no incentive to sell at a price below market price, if they try to sell above market price they will not sell any output. there are a very large amount of perfect substitutes.

A differentiated product has close but not perfect substitutes (T or F)

True

A patent is a barrier to entry. (T or F)

True

Patents encourage invention of new products (T or F)

True

The market demand and the firms demand are the same for a monopoly. (True or False)

True

Perfect competition is characterized by (3)

Well informed buyers. A large number of buyers and sellers. No restrictions on entry into or exit from the industry.

What is an example of a perfectly competitive firms long run decision?

Whether or not to enter/exit and industry

Marketing consists of what? (2 things)

advertising and packaging.

what describes a barrier to entry?

anything that protects a firm from the arrival of new competitors.

Firms face competition when the good they produce..?

has a close substitute

Firms use marketing to..? (3 things)

influence customers buying decision. convince customers that their product is worth the price. persuade buyers that their product is better than others.

Perfectly competitive firms are price takers because..?

many other firms produce identical products

In monopolistic competition, the products of different sellers are assumed to be..?

similar BUT slightly different

Patents are what? (3 things)

stimulate innovation, encourage the invention of new products and production methods, are exclusive rights granted to the inventor of a product or service.

What would create a natural monopoly?

technology enabling a single firm to produce at a lower average cost than two or more firms.

What is one requirement for a monopoly?

the product is unique with no close substitutes