Chapter 9 True or False Quiz

. Market structure refers to the competitive environment in which the buyers and sellers of a product operate.

. Economists define a market as a place where buyers go to purchase units of a commodity.

. A market structure is defined in terms of the number and sizes of buyers and sellers on a market, the type of product traded on the market, the mobility of resources, and the amount of knowledge economic agents have about market conditions.

. If a market is perfectly competitive, then the market demand curve must be infinitely price elastic.

. If the firms in an industry are price takers, then every firm in the industry faces a horizontal demand curve.

. Firms that sell commodities on markets that are imperfectly competitive face downward-sloping demand curves.

. Monopoly is a market structure in which there is only one buyer of a product for which there are no close substitutes.

. Oligopoly is a market structure in which there are few sellers of a product and additional sellers cannot easily enter the industry.

. Monopsony is a market structure in which there is a single buyer of a commodity or input for which there are no close substitutes.

. Under perfect competition, changes in market supply do not affect market price.

. Commodities that sell for the same price are referred to as homogeneous.

. Most commodities are traded on perfectly competitive markets.

. The combination of product homogeneity and perfect knowledge ensure that a single price will prevail on a perfectly competitive market.

. Product price on a competitive market is determined by the intersection of the market demand curve with the market supply curve.

. If a firm in a perfectly competitive industry charges a higher price than that charged by other firms in the industry it will be unable to sell any of its output.

. The demand curve faced by a perfectly competitive firm is horizontal.

. A perfectly competitive firm's demand curve is above its marginal revenue curve.

. If profit maximizing firms in a perfectly competitive industry are producing 14,000 units per day, but can only sell 12,000 units per day at the current market price of $23, then the market equilibrium price must be greater than $23.

. If profit maximizing firms in a perfectly competitive industry will produce 14,000 units per day if the market price is $23 and consumers will purchase 14,000 units per day if the market price is $20, then the market equilibrium quantity must be greater than 14,000.

. The efficient market hypothesis asserts that the price of a share of a firm's stock reflects the value implied by available information about the profitability of the firm.

. The only choice available to a perfectly competitive firm that is producing efficiently is what price to charge in order to maximize profits.

. Every profit-maximizing firm should produce a level of output where marginal revenue is equal to marginal cost.

. A perfectly competitive firm maximizes profit by producing a level of output where marginal cost is equal to price.

. If a perfectly competitive firm is producing a level of output where its marginal cost is greater than market price, it should raise its price.

. If a perfectly competitive firm is producing a level of output where price is equal to marginal cost and greater than average variable cost, then it should cease production in the short run.

. The shut-down point of a perfectly competitive firm is at the minimum point on its short-run average variable cost curve.

. The supply curve of a perfectly competitive firm is identical to the portion of its marginal cost curve that is above its average total cost curve.

. If a perfectly competitive firm is in long-run equilibrium, then it is earning an economic profit of zero.

. If a perfectly competitive firm is in long-run equilibrium, then market price is equal to short-run marginal cost, short-run average total cost, long-run marginal cost, and long-run average total cost.

. If firms in a perfectly competitive industry are earning economic profits greater than zero, then more firms will enter the industry.

. If more firms enter a perfectly competitive industry, market equilibrium price will increase.

. A perfectly competitive firm is in long-run equilibrium when all inputs are earning their opportunity costs.

. Depreciation of a country's currency tends to make imports more expensive.

. Appreciation of a country's currency tends to increase the demand for the country's exports.

. An increase the number of U.S. dollars required to purchase one British pound would be a depreciation of the U.S. dollar and an appreciation of the British pound.

. An increase in the U.S. demand for British products would tend to cause an appreciation of the British pound.

. A monopolist's marginal revenue is below market price.

. A natural monopoly is one that results from exclusive control of a crucial natural resource.

. All monopoly power that is based on barriers to entry is subject to decay in the long run except that based on government franchise.

. Monopolists always make economic profits.

. Monopolists are price takers.

. If a monopolist earns $5,000 when it sells 100 units of output and $5,025 when it sells 101 units of output, then the marginal revenue of the 101st unit is $25.

. If a monopolist has a linear demand curve, then it has a linear marginal revenue curve.

. A profit-maximizing monopolist will never produce a quantity that corresponds to a point on the inelastic portion of its demand curve.

. A monopolist will shut down in the short run if price is everywhere less than average total cost.

. A monopolist that is earning a profit in the short run can be expected to earn at least as much profit in the long run.

. If a monopolist is in short-run equilibrium, it must be in long-run equilibrium.

. In general, if a perfectly competitive industry is taken over by a monopolist, it will charge a lower price and produce a larger quantity of output.

. When compared to perfect competition, monopoly results in a deadweight loss.

. The difference between the total amount that consumers would be willing to pay for a given level of consumption and the amount that they actually have to pay is called consumers' surplus.

. Most markets are either perfectly competitive or monopolized.

. If a firm is small, produces a differentiated good for which there are many close substitutes, and it is easy to enter and exit the industry, then the firm is a monopolistic competitor.

. Monopolistic competition is most common in the manufacturing sector.

. The short-run supply curve for a monopolistically competitive firm is identical to the upward-sloping portion of the firm's marginal cost curve above average variable cost.

. Monopolistically competitive firms are price takers.

. Monopolistically competitive firms face a downward-sloping demand curve.

. If an imperfectly competitive firm has a linear demand curve, then its marginal revenue curve has the same price intercept as its demand curve.

. If an imperfectly competitive firm has a linear demand curve, then its marginal revenue curve has a quantity intercept that is half that of the demand curve.

. As more firms enter a monopolistically competitive industry, the market supply curve shifts to the right.

. As firms leave a monopolistically competitive industry, the remaining firms' demand curves shift to the right and become less elastic.

. If a monopolistically competitive firm is in long-run equilibrium, then its short-run average total cost curve is tangent to its demand curve.

. A market that is monopolistically competitive will tend to have fewer firms than would be the case if the same market was perfectly competitive.

. Monopolistically competitive firms operate with excess capacity.

. In the long run, monopolistically competitive firms earn zero economic profit.

. Product variation is the result of quality control problems.

. Monopolistically competitive firms attempt to minimize selling expenses.

. Selling expenses include any marketing expenditures that are intended to increase the demand for a product.

. A firm should increase expenditures on marketing and product variation up to the point where an additional dollar spent generates a marginal revenue of no less than one dollar.

. One problem with the theory of monopolistic competition is that it is difficult to define a market and to identify the firms that comprise it.

. In most cases, a monopolistically competitive market can be adequately approximated by the perfectly competitive model or the oligopoly model.

Back to top