Market Structures
C
A major characteristic of monopolistic competition is that prices will be _____. (A) Unrelated to the type of competition. (B) Higher than in a true monopoly. (C) Higher than in perfect competition. (D) Lower than in perfect competition.
Imperfect competition.
A market structure that does not meet the conditions of perfect competition:
Government monopoly.
A monopoly created by the government:
Commodity.
A product, such as petroleum, notebook paper, or milk, that is the same no matter who produces it:
Nonprice competition.
A way to attract customers through style, service, or location, but not a lower price:
Collusion.
Agreement among firms to divide the market, set prices, or limit production:
C
Cartels are difficult to operate for which of the following reasons? (A) They are illegal worldwide. (B) Firms in a cartel are likely to lose money. (C) They work only if members keep to their agreed output.. (D) The products are perfectly competitive.
Merger.
Combination of two or more companies into a single firm:
D
Which of the following markets is an example of monopolistic competition? (A) Oranges (B) Electricity (C) Bus tickets (D) Bookbags
B
Which of the following weakens government control in the marketplace? (A) Predatory pricing. (B) Deregulation. (C) Regulation of businesses. (D) Antitrust legislation.
Price discrimination.
Division of customers into groups based on how much they will pay for a good:
B
In a perfectly competitive market, individual consumers have _____. (A) Less influence than producers concerning prices. (B) No influence over determining price. (C) More influence than producers concerning prices. (D) More influence than consumers in other market structures.
D
In general, monopolistically competitive firms earn profits _____. (A) Higher than oligopolies. (B) Slightly above their costs in the long run. (C) Well above their costs in the long run. (D) About the same as oligopolies.
B
In monopolistic competition, profits well in excess of costs are unlikely because _____. (A) Customers always return to the product that is least expensive, even if the quality of that product is much lower. (B) Established rivals and new firms would lure customers away with slightly different and/or cheaper products. (C) Excess output can be maintained only for short periods. (D) Nonprice competition only works for the short term.
Monopolistic competition.
Market structure in which many companies sell products that are similar but not identical:
Market power.
Ability of a company to change prices and output like a monopolist:
Price fixing.
Agreement among firms to charge one price for the same good:
Deregulation.
Removal of some government controls over a market:
Predatory pricing.
Selling a product below cost to drive competitors out of the market:
Start-up costs.
The expenses a firm must pay before it can begin to produce and sell goods:
B
A landscaper purchases a lawnmower, a rake, a truckload of gravel, and a chainsaw. Which of these four goods would most likely be considered as a commodity? (A) A rake (B) A truckload of gravel (C) A chainsaw (D) A lawnmower
A
A local restaurant has prepared a new recipe for its lunch menu. Which form of nonprice competition is this? (A) Physical characteristics (B) Location (C) Image (D) Service level
B
A monopolist will set its production at a level where marginal cost is equal to _____. (A) Total revenue (B) Marginal revenue (C) The equilibrium market price (D) Quantity supplied
A
Antitrust laws allow the U.S. government to do all of the following except _____. (A) Stop firms from selling new products. (B) Watch and regulate industry. (C) Break up existing monopolies. (D) Stop firms from forming monopolies.
B
If a firm enjoys economies of scale, _____. (A) Its average total cost will increase as production increases. (B) Its average total cost will decrease as production increases. (C) Its total costs will decrease as production increases. (D) Its marginal revenue will increase as production increases.
C
If a firm enjoys economies of scale, _____. (A) Its average total cost will increase as production increases. (B) Its total costs will decrease as production increases. (C) Its average total cost will decrease as production increases. (D) Its marginal revenue will increase as production increases.
C
In the 1990s, what reduced the barriers to entry in the local telephone market? (A) The end of a twenty-year patent on telephone technology. (B) The deregulation of the local telephone industry. (C) The rising popularity of cellular phones. (D) The licensing of new, smaller phone companies.
D
What is the relationship between start-up costs and a competitive market? (A) There is no consistent relationship between start-up costs and the competitiveness of a market. (B) Low start-up costs are likely to make a market less competitive. (C) Markets with high start-up costs are more likely to be perfectly competitive. (D) Markets with high start-up costs are less likely to be perfectly competitive.
B
What was the an effect of the Sherman Antitrust Act? (A) John D. Rockefeller formed the Standard Oil Trust as a protected natural monopoly. (B) The federal government won the power to prevent monopolies and mergers that interfered with trade between states. (C) Microsoft required personal computer manufacturers to include its web browser with the Microsoft Windows operating system. (D) The federal government repealed regulations that controlled the airline and trucking industries.
C
When a real estate agent says the three most important factors when buying a property are "location, location, location," the agent is referring to one of the forms of _____. (A) Oligopoly (B) Collusion (C) Nonprice competition (D) Monopolistic competition
D
Which of the following is characteristic of a competitive market? (A) Low output (B) High costs (C) Inexhaustible supply (D) Efficiency
C
Which of the following is not a condition for perfect competition? (A) Many buyers and sellers participate in the market. (B) Sellers are able to enter and exit the market freely. (C) Sellers offer a wide variety of products. (D) Buyers and sellers are well informed about products.
C
Which of the following is not a form of nonprice competition? (A) Location (B) Advertising (C) Discounts (D) Physical characteristics
A
Which of the following is not an example of barriers to entry? (A) In some counties, laws require retail stores to be closed on Sundays. (B) Cable companies must lay miles of underground cable before they can serve a single customer in a new market. (C) An entrepreneur who wants to own a clothing store must rent a building, hire workers, and buy clothing to sell. (D) A person who wishes to practice medicine is required to attend medical school, do an internship, and pass a state exam.
D
Which of the following statements is true about profits in a monopolistically competitive market? (A) Monopolistically competitive firms are as profitable as monopoly firms. (B) Profits are rare in monopolistically competitive markets. (C) Most firms will earn substantial profits from year to year. (D) Many firms will earn profits in the short term, but they must constantly innovate and compete to earn profits in the long term.
B
Which of these is an example of economies of scale? (A) A restaurant charges customers $1 a glass for water that was once provided for free. (B) A ranch increases its profits by expanding from 400 to 800 cattle without buying or renting additional land. (C) An Internet access company charges customers different rates for using the Internet at different times of day. (D) A shoe store finds it can increase profits by hiring high school students who are willing to work for minimum wage.
B
Which of these will not lead to a monopoly? (A) A license (B) Antitrust laws (C) A patent (D) A franchise
C
Which of these will not lead to a monopoly? (A) A patent (B) A franchise (C) Antitrust laws (D) A license
C
Why are there actually relatively few markets in which there is perfect competition? (A) Buyers will not pay more for perfect competition. (B) High prices keep companies in the market longer than necessary. (C) Barriers keep companies from entering the market freely. (D) Lack of demand keeps buyers from the market.
Cartel members rarely stick to the agreed-upon price and output, and prices fall as a result.
Why do cartels usually not last long?
A
Why do companies practice price discrimination? (A) Price discrimination recognizes that groups of consumers are willing and able to pay different amounts for a good. (B) Price discrimination allows companies to defend an illegal monopoly against free market competition. (C) Price discrimination enables companies to charge all consumers the same price for a good or service. (D) Price discrimination provides individual producers with an advantage in perfectly competitive markets.
C
Why does a perfectly competitive market require many participants as both buyers and sellers? (A) So that both buyer and seller have the same information. (B) In order to maintain quality over the goods. (C) So that no individual can control the price. (D) Because the merchandise must be uniform.
C
Why does the government sometimes give monopoly power to a company by issuing a patent? (A) The government does not want competition for the product. (B) The company pays the government for the patent. (C) The company can then profit from their research without competition. (D) The company makes a product better than anyone else's.
D
Why is a discounted airline fare a price discrimination that can be offered? (A) Because people who fly on business want the price discounts but do not qualify. (B) Because senior citizens qualify for discounts on certain types of flights but not on others. (C) Because people do not necessarily want to go where the discounts will allow them to go. (D) Because vacationers are willing to put up with the restrictions that the airlines impose.
C
Firms in which market structure hold the most market power? (A) Monopolistic competition (B) Oligopoly (C) Monopoly (D) Perfect competition
B
For the average total cost curve of a firm with economies of scale, what happens to costs as output increases? (A) Costs go up. (B) Costs go down. (C) Costs initially go up and then go down. (D) Costs initially go down and then go up.
Cartel.
Formal organization of producers that agree to coordinate prices and production:
License.
Government-issued right to operate a business:
D
How can inventions such as cellular phones affect the government's antitrust policies? (A) The technology causes the need for stricter regulation than before. (B) Government rules can allow higher charges than competition. (C) People using the technology do not want antitrust regulations. (D) They can mean that the need for regulation no longer exists.
Ax
How did Microsoft defend its case concerning the company's required installation of Microsoft Internet browsers with all installations of their operating systems? (A) The browser could not be sold separately. (B) The browser worked best with their operating system. (C) The browser had no profit making potential as a separate product. (D) The browser was not part of the operating system.
It led to some mergers and some firms dropping out of the business. The deregulation also led to lower air fares for some consumers, depending on the degree of competition at particular airport locations.
How did deregulation change the air travel industry?
They would be slightly higher because the affected firms do have the power to raise prices, but given the number of firms and ease of entry, prices would not increase as much as they would in the case of a true monopoly.
How do prices in monopolistically competitive firms compare to those in perfect competition?
B
How does a natural monopoly function? (A) A few firms are in perfect competition. (B) A single firm supplies all the output. (C) Imperfect competition makes it difficult for firms to do business. (D) The government supplies all buyers with the product.
D
How does a natural monopoly function? (A) The government supplies all buyers with the product. (B) A few firms are in perfect competition. (C) Imperfect competition makes it difficult for firms to do business. (D) A single firm supplies all the output.
D
How does a perfect market influence output? (A) Different firms each strive to make more goods and capture more of the market. (B) Different firms make different amounts of goods, but some make a profit and others do not. (C) Each firm makes its output as large as possible even though some goods are not sold. (D) Each firm adjusts its output so that its costs, including profit, are covered.
D
How much control over price do companies in a perfectly competitive market have? (A) Total control (B) Very little (C) Some (D) None
Franchise.
The right to sell a good or service within an exclusive market:
D
What is the purpose of both deregulation and antitrust laws? (A) To prevent monopolies. (B) To prevent inefficient commerce. (C) To promote government control. (D) To promote competition.
Barrier to entry.
Any factor that makes it difficult for a new firm to enter a market:
A
Before government approves a merger, what must the companies prove the merger would do? (A) Lower costs and consumer prices or lead to a better product. (B) Be beneficial by creating an artificial monopoly. (C) Be good for certain consumers but not others. (D) Actually raise the number of competitors in the market.
C
If two restaurants sell many of the same food items but one offers a higher level of service, the service distinction is a form of _____. (A) Local competition (B) Choice among substitute products (C) Nonprice competition (D) Price fixing
Antitrust laws.
Laws that encourage competition in the marketplace:
Patent.
License that gives the inventor of a new product the exclusive right to sell it for a certain period of time:
Trust.
Like a cartel, an illegal grouping of companies that discourages competition:
Differentiation.
Making a product different from other similar products:
Monopoly.
Market dominated by a single seller:
Oligopoly.
Market structure in which a few large firms dominate a market:
Natural monopoly.
Market that runs most efficiently when one large firm supplies all of the output.
A
Milk is considered a commodity because it is which of the following? (A) The same product regardless of who sells it. (B) An agricultural product. (C) An inexpensive product. (D) A product that can be bought in many different ways.
A
Monopolistically competitive firms may not be able to produce goods at the lowest possible average cost. This statement is describing how monopolistically competitive firms might be _____. (A) Without economies of scale. (B) Unable to engage in price fixing. (C) Lacking differentiation. (D) Unsuccessful at nonprice competition.
C
Patents are a form of monopoly that society allows because they _____. (A) Set up a situation in which only a few manufacturers can control an industry. (B) Give companies the right to decide who will be allowed to use their products. (C) Encourage firms to research and develop new products that benefit society as a whole. (D) Maintain an orderly way for companies to make a lot of money.
C
The controller of a monopoly sets the price of goods by charging _____. (A) As much as possible, regardless of the amount sold. (B) Less than the company would charge if it did not have a monopoly. (C) The price at which the profit is maximized. (D) Only a small amount over cost.
Price war.
Series of competitive price cuts that lowers the market price below the cost of production:
When the combined company will not be able to exert control over markets or prices.
Under what conditions will the government approve a merger?
D
What are the factors that cause a producer's average cost per unit to fall as output rises called? (A) Licenses (B) Franchises (C) Patents (D) Economies of scale
B
What did the government claim Microsoft did to illegally extend its control over the market? (A) It had used predatory pricing and required customers to buy other products. (B) It had used predatory pricing to drive competitors out of business. (C) It had used predatory pricing and mergers. (D) It had used predatory pricing and formed a cartel with other companies.
C
What happens to a monopolistically competitive firm that begins to charge an excessive price for its product? (A) Consumers will boycott the product. (B) The firm will go out of business. (C) Consumers will substitute with a rival's product. (D) The government will regulate the price.
B
What is a company doing if it requires customers to buy multiple products from that company to obtain the one product that the customer truly wants? (A) Practicing predatory pricing. (B) Working around antitrust laws to gain control over the market. (C) Engaging in nonprice competition. (D) Using deregulation.
D
What is an agreement among members of an oligopoly to set prices and production levels called? (A) Price leadership. (B) Competition. (C) Imperfect monopoly. (D) Collusion.
D
What is any factor that makes it difficult for a new firm to enter a market referred to as? (A) A sustainable cost. (B) A commodity. (C) Perfect competition. (D) A barrier to entry.
C
What is monopolistic competition? (A) One company selling several different products under different names. (B) One company selling the identical product under different names. (C) Many companies selling similar but not identical products. (D) A very few companies selling identical products.
C
What is one of the primary characteristics of perfectly competitive markets? (A) They have relatively high barriers to entry. (B) They have relatively high start-up costs. (C) They are relatively efficient. (D) They are relatively inefficient.
B
What is one role of the federal government's Department of Justice? (A) To eliminate all barriers to entry. (B) To break up monopolies. (C) To encourage price fixing. (D) To provide businesses with loans for start-up costs.
High startup costs associated with expensive machinery and large advertising campaigns.
What is the primary reason why oligopolies have formed in the airline and cola manufacturing industries?
A
When the government deregulates a product or service, what happens to it? (A) Some government regulations over the industry are eliminated. (B) Government control over the industry is stopped. (C) The product or service is available to more people. (D) The product or service becomes cheaper.
C
Which is the main difference between perfect competition and monopolistic competition? (A) In perfect competition, the prices are set by the government. (B) In monopolistic competition, there are fewer sellers and more buyers. (C) In monopolistic competition, sellers can profit from the differences between their products and other products. (D) In perfect competition, the buyer is free to buy from any seller he or she chooses.
D
Which of the following could not prevent a market from becoming perfectly competitive? (A) High start-up costs. (B) Problems accessing necessary technology. (C) Lack of technological know-how. (D) Excessive information.
B
Which of the following describes an oligopoly? (A) Eight to ten firms producing 90 percent of the output. (B) Four firms producing 70 to 80 percent of the output. (C) One firm producing 95 percent of the output. (D) Eight to ten firms producing 60 to 70 percent of the output.
D
Which of the following is an example of a barrier to entry? (A) Government deregulation (B) Low start-up costs (C) Perfect competition (D) High start-up costs
C
Which of the following is an example of a market that meets all four conditions for perfect competition? (A) Books (B) Jeans (C) Wheat (D) Bagels
Perfect competition.
Market structure in which a large number of firms all produce the same product: