hinsafdar

Which of the following is the most likely result of a technological improvement in a perfectly competitive industry?

A) The costs for individual firms increase.

B) The industry supply curve shifts to the right.

C) Individual firms’ supply curves shift to the left.

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When individual firms implement technological change, their costs decline and their supply (cost) curve shifts to the right. At the lower costs, firms are willing to supply a given quantity at a reduced price. The lower cost structure for the individual firms shifts the industry supply curve to the right.

hinsafdar

Concentration measures are most likely to be used to:

A) measure elasticity of demand facing an industry.

B) analyze barriers to entry into an industry.

C) identify the market structure of an industry.

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Concentration measures are used to identify the market structure of an industry (perfect competition, monopolistic competition, oligopoly, or monopoly). Concentration measures do not directly indicate an industry’s barriers to entry or elasticity of demand.

hinsafdar

The most effective way to assess the impact of a potential merger on the market structure of an industry is to:

A) calculate the n-firm concentration ratio.

B) analyze barriers to entry.

C) calculate the Hirfindahl-Hirschman Index.

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The Hirfindahl-Hirschman Index is more sensitive to mergers than the n-firm concentration ratio. Although barriers to entry for an industry are important in assessing market structure, they are not necessarily related to the impact of a merger.

hinsafdar

A firm has the following characteristics:

• relatively small in size.
• marginal revenue is equal to the selling price.
• economic profits will not be earned for any significant period of time.

The firm is best described as existing in a(n):

A) price searcher market.

B) monopolistic market structure.

C) purely competitive market.

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The firm being described is a price taker firm in a purely competitive market. These firms must sell their product at the going market price, there are no barriers to entry, and there are a large number of firms that produce a homogeneous product.

hinsafdar

An economic market characterized by a large number of independent firms all producing identical products is best described as:

A) monopolistic competition.

B) monopoly.

C) perfect competition.

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In a perfectly competitive economic market, there are many independent firms, each seller is small relative to the total market, and there are no barriers to entry or exit.

hinsafdar

Which of the following most accurately describes the competitive structure that is characterized by a firm that operates with the lowest average total cost and has the capacity to produce all of an industry’s output?

A) Natural monopoly.

B) Competitive monopoly.

C) Oligopoly.

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A natural monopoly is characterized by a single firm within the industry that has sufficient capacity to meet the entire demand of an industry because at that scale the lowest average total cost is achieved.

hinsafdar

Which of the following most accurately describes a market structure that has one seller of a specific, well-defined product that has no good substitutes?

A) Monopoly.

B) Perfect competition.

C) Oligopoly.

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A monopoly is characterized by one seller, a specific and well-defined product for which there is no good substitutes, and high barriers to entry.

hinsafdar

Which one of the following structures is characterized by free entry and exit, a differentiated product, and price searcher behavior?

A) Monopolistic competition.

B) Oligopoly.

C) Pure competition.

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Monopolistic competition is another name for competitive price-searcher markets. There are a large number of independent sellers, each produces a differentiated product, each market has a low barrier to entry, and each producer faces a downward sloping demand curve.

hinsafdar

Assume that the market for paper supplies and the market for toothpicks have the following characteristics:

The Market for Paper Supplies is comprised of:

• A large number of independent sellers

• Differentiated products

• Low barriers to entry/exit

The Market for Toothpicks is comprised of:

• A large number of independent sellers

• Homogeneous products

• No barriers to entry/exit

The Papyrus Company operates in the market for paper supplies and Wudden Floss operates in the toothpick market. The sales managers for both companies want to know how a change in price will affect the quantity sold.

Which of the following choices best completes the following sentence? If both firms increase prices, the quantity sold by Papyrus Company will:

A) increase, and the quantity sold by Wudden Floss will decrease.

B) decrease, and so will the quantity sold by Wudden Floss.

C) decrease, and Wudden Floss will sell nothing.

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Papyrus Company is an example of a price searcher engaged in monopolistic competition (low barriers to entry). Thus, the company faces a downward sloping demand curve and highly elastic demand. An increase in price will result in fewer units sold. Wudden Floss is an example of a price taker operating in a purely competitive market. Thus, the firm faces a horizontal demand curve and perfectly elastic demand. An increase in price will result in no units sold. In a purely competitive market, the firm must take the market price.

hinsafdar

The type of economic market that features a large number of competitors offering differentiated products is best characterized as:

A) perfect competition.

B) monopolistic competition.

C) oligopoly.

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Monopolistic competition is used to describe markets where there are a large number of competitors producing differentiated products.
In perfect competition all firms produce identical products. In an oligopoly there is a small number of firms.