JonnyKay

Which of the following situations is least likely to lead to high barriers to entry and monopoly supply?

A) Natural resources are spread among many firms.

B) Economies of scale are present.

C) Governmental licensing and regulations are present.

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All cases except wide distribution of a natural resource facilitate a monopoly. If natural resource ownership is concentrated in one firm a monopoly would result.

JonnyKay

In a natural monopoly:

A) the average total cost of production continually declines with increased output.

B) one firm controls all natural resources.

C) the price charged by a monopolist is determined by the intersection of the demand curve with the marginal cost curve.

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A monopoly situation in which the average total cost of production continually declines with increased output is called a natural monopoly.

JonnyKay

Natural monopolies exist because they can produce at lower costs with greater output, which means there are economies of scale. Which of the following industries is typically a natural monopoly?

A) Utilities.

B) Technology.

C) Oil.

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With a natural monopoly average costs of production will be lowest when a single large firm produces the entire output demanded such as a utility.

JonnyKay

Which of the following is least likely a barrier to entry?

A) Allocative Efficiency.

B) Patents.

C) Economies of Scale.

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The other barriers to entry are government licensing and legal barriers such as utilities are given the exclusive right to supply electricity in certain areas.

JonnyKay

An oligopolistic firm:

A) will consider the potential response of its rivals when making business decisions.

B) is likely to be formed when the minimum-cost output is only a small portion of the market output.

C) will seldom use product quality as a competitive weapon.

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Oligopolists are highly dependent upon the actions of their rivals when making business decisions. Price determination in the auto industry is a good example. Automakers tend to play "follow the leader" and announce price increases in close synchronization. They are not working explicitly together, but the actions of one producer have a large impact on the others when products are differentiated, quality may be a competitive strategy.

JonnyKay

Firms in perfectly competitive markets and firms operating in a market characterized by monopolistic competition have several things in common. Which of the following is least likely one of them? Both:

A) operate in markets that have low or no barriers to entry.

B) face perfectly elastic demand curves.

C) maximize economic profit.

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The only item listed in the question that monopolistic competition and pure competition do not have in common is a perfectly elastic demand curve. Under pure competition, producers face a perfectly elastic demand curve, whereas price searchers face downward sloping demand curves.

JonnyKay

Characteristics of an oligopoly least likely include:

A) interdependence among competitors.

B) significant barriers to entry.

C) identical products.

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In an oligopoly, a small number of producers sell products that can be similar or differentiated. An oligopoly typically features significant barriers to entry including economies of scale. Pricing and output decisions by each firm directly influence the decisions of competing firms.

JonnyKay

A market that is characterized by monopolistic competition is least likely to feature:

A) low barriers to entry.

B) a small number of independent sellers.

C) sellers that produce a differentiated product.

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In monopolistic competition, there is a large, not small, number of independent sellers.

JonnyKay

Which of the following is most likely to be considered a characteristic of monopolistic competition?

A) Inelastic demand curves.

B) High barriers to entry and exit.

C) Differentiated products.

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Differentiated products are a key characteristic of monopolistic competition. Although producers have downward sloping demand curves, they are typically elastic.

JonnyKay

Which of the following is least likely to be considered a feature that is common to both monopolistic competition and perfect competition?

A) Extensive advertising to differentiate products.

B) Low or no barriers to entry.

C) Zero economic profits in the long run.

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The only item listed in the question that monopolistic competition and perfect competition do not have in common is the use of advertising to differentiate their products. Extensive advertising is a key feature of monopolistic competition.