Question 1

When buyers in a competitive market take the selling price as given, they are said to be
A)market entrants.
B)monopolists.
C)free riders.
D)price takers.

Accepted Answer

When buyers in a competitive market take the selling price as given, they have no influence on the market price and must accept it. Such buyers are known as price takers.

Question 2

In a competitive market, the actions of any single buyer or seller will
A)have a negligible impact on the market price.
B)have little effect on market equilibrium quantity but will affect market equilibrium price.
C)affect marginal revenue and average revenue but not price.
D)adversely affect the profitability of more than one firm in the market.

Accepted Answer

In a competitive market, there are many buyers and sellers, and each individual buyer or seller has only a small impact on the market price. Therefore, the actions of any single buyer or seller will have a negligible impact on the market price.

Question 3

Which of the following is a characteristic of a competitive market?
A)There are many buyers but few sellers.
B)Firms sell differentiated products.
C)There are many barriers to entry.
D)Buyers and sellers are price takers.

Accepted Answer

In a competitive market, buyers and sellers are price takers, which means they have no control over the market price and must accept it as given. This is a defining characteristic of a perfectly competitive market. Option A is incorrect because in a competitive market, there are many sellers, not few. Option B is incorrect because in a competitive market, firms sell identical or standardized products, not differentiated ones. Option C is incorrect because in a competitive market, there are few barriers to entry, making it easy for new firms to enter and compete.

Question 4

Which of the following industries is most likely to exhibit the characteristic of free entry?
A)nuclear power
B)municipal water and sewer
C)dairy farming
D)airport security

Accepted Answer

Dairy farming is an industry that involves low barriers to entry and exit. This means that it is relatively easy for new firms to enter the market and start producing milk, cheese, and other dairy products. Unlike nuclear power or airport security, which require significant investments in infrastructure and technology, dairy farming can be started with a relatively small amount of capital. Municipal water and sewer may also have free entry characteristics, but this depends on the specific regulatory environment and the availability of water sources.

Question 5

Which of the following is a characteristic of a competitive market?
A)There are many buyers but few sellers.
B)Many firms have market power because they own patents.
C)Buyers and sellers are price takers.
D)Firms sell differentiated products.

Accepted Answer

In a competitive market, both buyers and sellers are price takers, meaning they have no control over the price level and must accept the market price. This is because there are many buyers and sellers, with no individual firm or consumer having significant market power to influence prices. Option A is incorrect because having many buyers but few sellers suggests a situation with limited competition or even a monopoly, while option B implies the presence of monopolistic competition or oligopoly, where firms have market power. Option D also does not describe a competitive market as differentiated products imply some level of product differentiation, which may result in market power for the firms producing such products.

Question 6

Which of the following is not a characteristic of a perfectly competitive market?
A)There are many buyers and sellers.
B)Firms can freely enter and exit the market.
C)Many firms have market power.
D)Firms sell very similar products.

Accepted Answer

One of the defining characteristics of a perfectly competitive market is that no single firm has market power, meaning they cannot influence the price of the product. This is because there are many buyers and sellers, firms can freely enter and exit the market, and they sell very similar products. Therefore, option C that states "many firms have market power" is the correct answer as it contradicts the definition of a perfectly competitive market.

Question 7

Which of the following industries is least likely to exhibit the characteristic of free entry?
A)ethnic restaurants
B)municipal water and sewer
C)corn farming
D)grocery stores

Accepted Answer

Municipal water and sewer is a government-regulated monopoly, meaning there is typically only one provider for these services in a given area. This lack of competition makes it less likely for new firms to enter the market. The other industries listed are more likely to have low barriers to entry, allowing new firms to enter the market and compete with existing firms.

Question 8

Competitive markets are characterized by
A)a small number of buyers and sellers.
B)unique products.
C)the interdependence of firms.
D)free entry and exit by firms.

Accepted Answer

Competitive markets are characterized by free entry and exit by firms. In such markets, there are many buyers and sellers who compete with each other, leading to the determination of prices by the forces of supply and demand. The products are usually not unique and firms are not interdependent, as they can easily enter or leave the market without affecting others. Therefore, the correct answer is option D: free entry and exit by firms.

Question 9

In a competitive market, the actions of any single buyer or seller will
A)discourage entry by competitors.
B)influence the profits of other firms in the market.
C)have a negligible impact on the market price.
D)Both a and b are correct.

Accepted Answer

The answer of In a competitive market, the actions of...

Question 10

Free entry means that
A)the government pays any entry costs for individual firms.
B)government-funded research lowers the costs of patents and other barriers to entry.
C)a firm's marginal cost is zero.
D)no legal barriers prevent a firm from entering an industry.

Accepted Answer

Free entry means there are no legal barriers preventing a firm from entering an industry. It does not necessarily mean that the government is paying for any costs, funding research, or that a firm's marginal cost is zero.

Question 11

Which of the following industries is least likely to exhibit the characteristic of free entry?
A)bookstores
B)hairstyling salons
C)yoga studios
D)satellite radio

Accepted Answer

Satellite radio is a capital-intensive industry, requiring significant investment in satellites and broadcasting infrastructure, making it difficult for new firms to enter the market. It also requires costly contracts for exclusive programming, making it even harder for new entrants to compete. Thus, it is less likely to exhibit the characteristic of free entry. The other industries listed require less specialized equipment or infrastructure and have lower barriers to entry.

Question 12

A market is competitive if
(i)firms have the flexibility to price their own product.
(ii)each buyer is small compared to the market.
(iii)each seller is small compared to the market.
A)(i) and (ii) only
B)(i) and (iii) only
C)(ii) and (iii) only
D)(i), (ii), and (iii)

Accepted Answer

In a competitive market, both buyers and sellers are price takers, meaning they are small compared to the market and cannot influence prices.

Question 13

Which of the following industries is most likely to exhibit the characteristic of free entry?
A)electricity
B)satellite radio
C)mineral mining
D)tennis shoes

Accepted Answer

The tennis shoes industry is most likely to exhibit the characteristic of free entry as it has low barriers to entry and exit. New firms can easily enter the market and compete with existing firms.

Question 14

Who is a price taker in a competitive market?
A)buyers only
B)sellers only
C)both buyers and sellers
D)neither buyers nor sellers

Accepted Answer

In a competitive market, both buyers and sellers are considered price takers. This is because there are numerous buyers and sellers in the market, making it impossible for any one individual or firm to influence the price of the product. Instead, they must accept the market price as given and adjust their buying or selling decisions accordingly.

Question 15

Which of the following is not a characteristic of a perfectly competitive market?
A)Firms are price takers.
B)Firms have difficulty entering the market.
C)There are many sellers in the market.
D)Goods offered for sale are largely the same.

Accepted Answer

Perfectly competitive markets have low barriers to entry, which means that new firms can easily enter the market if they see potential profits. This leads to many sellers competing, which in turn leads to firms being price takers (meaning they cannot influence the market price and must accept it as given). Additionally, in a perfectly competitive market, goods offered for sale are largely the same (homogeneous or standardized). Therefore, the characteristic that is not part of a perfectly competitive market is difficulty entering the market.

Question 16

A firm that has little ability to influence market prices operates in a
A)competitive market.
B)strategic market.
C)thin market.
D)power market.

Accepted Answer

In a competitive market, there are multiple sellers and buyers, and no single participant has the ability to influence market prices. Therefore, a firm with little ability to influence market prices is likely operating in a competitive market.

Question 17

Because the goods offered for sale in a competitive market are largely the same,
A)there will be few sellers in the market.
B)there will be few buyers in the market.
C)only a few buyers will have market power.
D)sellers will have little reason to charge less than the going market price.

Accepted Answer

Since the goods offered for sale in a competitive market are largely the same, there is no differentiation between they by the buyers. Therefore, sellers will have no reason to charge less than the going market price because customers will not pay more for the same product.

Question 18

Which of the following industries is least likely to exhibit the characteristic of free entry?
A)selling running apparel
B)satellite radio
C)yoga studios
D)wheat farming

Accepted Answer

The answer of Which of the following industries is least...

Question 19

Which of the following is not a characteristic of a competitive market?
A)Buyers and sellers are price takers.
B)Each firm sells a virtually identical product.
C)Entry is limited.
D)Each firm chooses an output level that maximizes profits.

Accepted Answer

In a competitive market, entry is not limited and new firms can enter and exit the market easily. This is one of the features that keeps the market competitive. Thus, option C is not a characteristic of a competitive market.

Question 20

In a competitive market, the actions of any single buyer or seller will
A)discourage entry by competitors.
B)influence the profits of other firms in the market.
C)have a negligible impact on the market price.
D)None of the above is correct.

Accepted Answer

The answer of In a competitive market, the actions of...

Quiz 14: Firms in Competitive Markets

When buyers in a competitive market take the selling price as given, they are said to be

In a competitive market, the actions of any single buyer or seller will

Which of the following is a characteristic of a competitive market?

Which of the following industries is most likely to exhibit the characteristic of free entry?

Which of the following is a characteristic of a competitive market?

Which of the following is not a characteristic of a perfectly competitive market?

Which of the following industries is least likely to exhibit the characteristic of free entry?

Competitive markets are characterized by

In a competitive market, the actions of any single buyer or seller will

Free entry means that

Which of the following industries is least likely to exhibit the characteristic of free entry?

A market is competitive if (i) firms have the flexibility to price their own product. (ii) each buyer is small compared to the market. (iii) each seller is small compared to the market.

Which of the following industries is most likely to exhibit the characteristic of free entry?

Who is a price taker in a competitive market?

Which of the following is not a characteristic of a perfectly competitive market?

A firm that has little ability to influence market prices operates in a

Because the goods offered for sale in a competitive market are largely the same,

Which of the following industries is least likely to exhibit the characteristic of free entry?

Which of the following is not a characteristic of a competitive market?

In a competitive market, the actions of any single buyer or seller will