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True/False Quiz

  1. Market structure refers to the competitive environment in which the buyers and sellers of a product operate.
      a. True
      b. False
  2. Economists define a market as a place where buyers go to purchase units of a commodity.
      a. True
      b. False
  3. 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.
      a. True
      b. False
  4. If a market is perfectly competitive, then the market demand curve must be infinitely price elastic.
      a. True
      b. False
  5. If the firms in an industry are price takers, then every firm in the industry faces a horizontal demand curve.
      a. True
      b. False
  6. Firms that sell commodities on markets that are imperfectly competitive face downward-sloping demand curves.
      a. True
      b. False
  7. Monopoly is a market structure in which there is only one buyer of a product for which there are no close substitutes.
      a. True
      b. False
  8. Oligopoly is a market structure in which there are few sellers of a product and additional sellers cannot easily enter the industry.
      a. True
      b. False
  9. Monopsony is a market structure in which there is a single buyer of a commodity or input for which there are no close substitutes.
      a. True
      b. False
  10. Under perfect competition, changes in market supply do not affect market price.
      a. True
      b. False
  11. Commodities that sell for the same price are referred to as homogeneous.
      a. True
      b. False
  12. Most commodities are traded on perfectly competitive markets.
      a. True
      b. False
  13. The combination of product homogeneity and perfect knowledge ensure that a single price will prevail on a perfectly competitive market.
      a. True
      b. False
  14. Product price on a competitive market is determined by the intersection of the market demand curve with the market supply curve.
      a. True
      b. False
  15. 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.
      a. True
      b. False
  16. The demand curve faced by a perfectly competitive firm is horizontal.
      a. True
      b. False
  17. A perfectly competitive firm's demand curve is above its marginal revenue curve.
      a. True
      b. False
  18. 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.
      a. True
      b. False
  19. 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.
      a. True
      b. False
  20. 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.
      a. True
      b. False
  21. The only choice available to a perfectly competitive firm that is producing efficiently is what price to charge in order to maximize profits.
      a. True
      b. False
  22. Every profit-maximizing firm should produce a level of output where marginal revenue is equal to marginal cost.
      a. True
      b. False
  23. A perfectly competitive firm maximizes profit by producing a level of output where marginal cost is equal to price.
      a. True
      b. False
  24. 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.
      a. True
      b. False
  25. 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.
      a. True
      b. False
  26. The shut-down pointof a perfectly competitive firm is at the minimum point on its short-run average variable cost curve.
      a. True
      b. False
  27. 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.
      a. True
      b. False
  28. If a perfectly competitive firm is in long-run equilibrium, then it is earning an economic profit of zero.
      a. True
      b. False
  29. 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.
      a. True
      b. False
  30. If firms in a perfectly competitive industry are earning economic profits greater than zero, then more firms will enter the industry.
      a. True
      b. False
  31. If more firms enter a perfectly competitive industry, market equilibrium price will increase.
      a. True
      b. False
  32. A perfectly competitive firm is in long-run equilibrium when all inputs are earning their opportunity costs.
      a. True
      b. False
  33. Depreciation of a country's currency tends to make imports more expensive.
      a. True
      b. False
  34. Appreciation of a country's currency tends to increase the demand for the country's exports.
      a. True
      b. False
  35. 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.
      a. True
      b. False
  36. An increase in the U.S. demand for British products would tend to cause an appreciation of the British pound.
      a. True
      b. False
  37. A monopolist's marginal revenue is below market price.
      a. True
      b. False
  38. A natural monopoly is one that results from exclusive control of a crucial natural resource.
      a. True
      b. False
  39. All monopoly power that is based on barriers to entry is subject to decay in the long run that based on government franchise.
      a. True
      b. False
  40. Monopolists always make economic profits.
      a. True
      b. False
  41. Monopolists are price takers.
      a. True
      b. False
  42. 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.
      a. True
      b. False
  43. If a monopolist has a linear demand curve, then it has a linear marginal revenue curve.
      a. True
      b. False
  44. A profit-maximizing monopolist will never produce a quantity that corresponds to a point on the inelastic portion of its demand curve.
      a. True
      b. False
  45. A monopolist will shut down in the short run if price is everywhere less than average total cost.
      a. True
      b. False
  46. 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.
      a. True
      b. False
  47. If a monopolist is in short-run equilibrium, it must be in long-run equilibrium.
      a. True
      b. False
  48. 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.
      a. True
      b. False
  49. When compared to perfect competition, monopoly results in a deadweight loss.
      a. True
      b. False
  50. 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.
      a. True
      b. False
  51. Most markets are either perfectly competitive or monopolized.
      a. True
      b. False
  52. 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.
      a. True
      b. False
  53. Monopolistic competition is most common in the manufacturing sector.
      a. True
      b. False
  54. 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.
      a. True
      b. False
  55. Monopolistically competitive firms are price takers.
      a. True
      b. False
  56. Monopolistically competitive firms face a downward-sloping demand curve.
      a. True
      b. False
  57. If an imperfectly competitive firm has a linear demand curve, then its marginal revenue curve has the same price intercept as its demand curve.
      a. True
      b. False
  58. 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.
      a. True
      b. False
  59. As more firms enter a monopolistically competitive industry, the market supply curve shifts to the right.
      a. True
      b. False
  60. As firms leave a monopolistically competitive industry, the remaining firms' demand curves shift to the right and become less elastic.
      a. True
      b. False
  61. 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. True
      b. False
  62. A market that is monopolistically competitive will tend to have fewer firms than would be the case if the same market was perfectly competitive.
      a. True
      b. False
  63. Monopolistically competitive firms operate with excess capacity.
      a. True
      b. False
  64. In the long run, monopolistically competitive firms earn zero economic profit.
      a. True
      b. False
  65. Product variation is the result of quality control problems.
      a. True
      b. False
  66. Monopolistically competitive firms attempt to minimize selling expenses.
      a. True
      b. False
  67. Selling expenses include any marketing expenditures that are intended to increase the demand for a product.
      a. True
      b. False
  68. 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.
      a. True
      b. False
  69. 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.
      a. True
      b. False
  70. In most cases, a monopolistically competitive market can be adequately approximated by the perfectly competitive model or the oligopoly model.
      a. True
      b. False
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