Economics-Market Structure Quiz

True or False: First-class mail service in the United States would be an example of a natural monopoly.

False. Only the U.S. Postal Service provides first-class mail service in the United States. This is an example of a government monopoly.

True or False: The market structure in which fast food restaurants in the U.S. compete is know as an oligopoly.

False. There are many different types of fast food restaurants in the United States making the market structure monopolistic competition.

True or False: ATT still has a monopoly for long-distance telephone service.

False: Although ATT enjoyed a monopoly for over 60 years, that monopoly no longer exists. Cell-phone technology changed the rules of the game for long-distance telephone service. It is now practical for there to be competition for long-distance service.

True or False: In a perfectly competitive market firms have no barriers to entry and some control over price.

False: Although there are no barriers to entry in perfect competition, the individual firm will have no control over price. Perfectly competitive firms are price-takers, meaning the price is set by the market, not the individual firms.

True or False: As a result of an airport expansion, the area around the airport is congested and noisy. This would be an example of a positive externality.

False: Congestion and noise would be negative externalities. In this situation, a positive externality might be that hotels and/or restaurants near the airport will do more business.

True or False: The profit maximizing point for a perfectly competitive firm will be where fixed costs = fixed revenues.

False: Firms should continue to produce up to that last point where marginal revenue is greater than or equal to marginal cost.

True or False: Shoe production in the United States is a good example of an oligopoly.

False: In an oligopoly there are only a few firms that control the market. If you recall the shoe activity we did in class, there are many different types of shoes, making shoe production monopolistic competition, not oligopoly.

True or False: During the 1970s, the federal government began to regulate the airline industry.

False: Just the opposite took place. During the 1970s the government deregulated the airline industry and opened it up for increased competition.

True or False: The West Bend Water Utility exists in a market known as monopolistic competition.

False: The West Bend Water Utility has a monopoly on the local market, as they are the only producer. This is different than monopolistic competition where you would find many producers.

True or False: A business produces six items at a total cost of $62 and produces seven items at a total cost of $70. The marginal cost of the seventh item would be $10.

False: The marginal cost of the seventh item would be $8. The difference in total cost between seven items and six items would be $70 - $62 = $8.

True or False: The primary purpose of antitrust laws and deregulation is to lower consumer prices.

False: The primary purpose for both antitrust laws and deregulation is to increase competition.

True or False: During the Great Depression people from the leading electric companies where charged with bribing public officials.

False: They got in trouble, but not for bribing officials. Instead they engaged in price-fixing, by submitting the exact same bids for projects related to the building of the T.V.A.

True or False: A market structure with a few firms that dominate the market is known as an oligopoly.

True: An oligopoly is dominated by a few firms who often act interdependently.

True or False: A good example of a geographic monopoly would be the small number of gas stations one would expect to see on a trip out West.

True: As there are very few people out West it is quite common for there to be only one gas station every 100 miles. This is a classic example of a geographic monopoly.

True or False: With monopolistic competition one would find many firms selling goods with some variety.

True: Both monopolistic competition and oligopoly have firms selling goods with some variety. Of these two, only monopolistic has many firms. A major feature of oligopoly is that it has only a few firms.

True or False: Domestic automobile production in the United States is an example of an oligopoly.

True: Domestic automobile production is dominated by three large producers : General Motors, Ford, and Chrysler.

True or False: There are times when competition could actually hurt consumers.

True: For example, if three different utilities attempted to provide water to a local community, none of the companies would have enough customers to enjoy economies of scale. This would result in higher prices for the consumer. As a result, the government allows only one water utility to exist and then regulates the prices so companies don't try to take advantage of the consumers.

True or False: Henry Ford once said a person could get a Model T in any color as long as that color was black.

True: Ford didn't think people really cared about how a car looked. General Motors and Chrysler started to produce cars of various colors and styles which hurt Ford's business immensely.

True or False: During the Great Depression, farmers dumped milk into fields in an attempt to raise the price of milk.

True: If the supply is greater than is the demand, producers can expect lower prices. The farmers deliberately dumped milk in an attempt to decrease the supply so that the price might increase. It didn't work

True or False: A monopolistically competitive firm raises its price too high. This firm should expect to lose business.

True: In monopolistic competition there are many competing firms. A wise consumer will look for a lower-priced item that is produced by one of the other competitors.

True or False: The first major antitrust law in the United States was the Sherman Antitrust Act.

True: Passed in 1890, the Sherman Antitrust Act was passed to help the government in its fight against monopolies.

True or False: There would be more competitors in a perfectly competitive market than there would be in monopolistic competition.

True: The greatest number of competing firms can be found in perfectly competitive markets. Although both market structures are described as having many competitors, there are substantially more competitors in perfect competition. There are so many competitors, none of them individually has any control over price.

True or False: A company that gets a patent for a new product they've developed would have a technological monopoly.

True: The patent allows the company the exclusive right to produce the product for a number of years.

True or False: Agricultural markets in the United States perfectly competitive markets.

True: Thousands of producers are selling exactly the same things. That is a perfectly competitive market.