Question 1

If a perfectly competitive firm doubles its output,
A) price will fall, obeying the law of demand
B) it will have no effect on price
C) the market supply curve shifts to the left
D) its profit will double
E) it prevents other firms from entering the market

Accepted Answer

In a perfectly competitive market, individual firms are price takers, meaning changes in their individual output have no effect on the market price. Doubling output by a single firm is too small to affect the overall market price due to the large number of firms in perfect competition.

Question 2

Barriers to entry in a perfectly competitive industry
A) are nonexistent
B) are impossible to overcome
C) are possible to overcome, but more difficult an obstacle to entry than are barriers in monopolistic competition
D) result from patents and economies of scale
E) are essentially financial rather than technical

Accepted Answer

In a perfectly competitive industry, there are no barriers to entry, allowing new firms to enter the market freely.

Question 3

According to the text, grass mowing, T-shirt production, and potato farming are examples of firms
A) that regularly advertise to increase market share
B) whose markets are highly seasonal
C) with high production differentiation
D) with high brand loyalty
E) with no barriers to entry

Accepted Answer

Grass mowing, T-shirt production, and potato farming are examples of industries with low barriers to entry, meaning it's relatively easy for new firms to start operations in these fields due to minimal regulatory, financial, or technological hurdles.

Question 4

If a perfectly competitive firm raises its price,
A) the quantity demanded of its good falls because the firm faces a downward- sloping demand curve
B) the quantity demanded of its good falls to zero
C) new firms will enter, attracted by the higher price
D) it loses some of its market share
E) other firms in the industry must follow the leader

Accepted Answer

In a perfectly competitive market, each firm is a price taker due to the homogeneous nature of the product. If a firm raises its price above the market price, consumers will switch to the numerous other firms offering the same product at the lower market price, reducing the quantity demanded for the price-increasing firm to zero.

Question 5

A perfectly competitive firm need never consider
A) price because it cannot control price
B) its fixed cost because it cannot shut down
C) its market share because advertising keeps it competitive
D) the effect of its own production on price
E) barriers to entry because the barriers never change

Accepted Answer

The answer of A perfectly competitive firm need never consider
A)...

Question 6

Diane Rae is a farmer in the perfectly competitive industry of sugar cane. She knows that she can sell more output than she currently does
A) only by lowering the price of her sugar cane
B) only if she is able to drive out some of her competition
C) without affecting the market price
D) by raising the barriers to entry so that more of the market is left to those like herself who are already in the industry
E) only if she can develop a patent on sales

Accepted Answer

In a perfectly competitive market, individual producers cannot influence the market price by altering their output level. They are price takers, meaning they can sell as much as they want at the market price.

Question 7

Fred Monroe is a fisherman in the perfectly competitive fish industry in northern Minnesota. After years of experience, he knows that the demand curve for the fish he sells is
A) horizontal
B) vertical
C) downward sloping
D) the same as the industry demand
E) upward sloping

Accepted Answer

In a perfectly competitive market, individual firms face a horizontal demand curve because they are price takers. This means that they can sell any quantity of their product at the market price, but they do not have the power to influence the price themselves.

Question 8

When a producer's demand curve is a horizontal straight line, we know that
A) market demand is horizontal as well
B) there is considerable brand loyalty for the producer's good
C) the producer is a monopolist
D) the producer has significant market share
E) the producer is in a perfectly competitive industry

Accepted Answer

A horizontal demand curve for a producer indicates that the producer is a price taker, which is characteristic of perfect competition. In such markets, individual producers have no control over the market price and must accept the prevailing market price. This situation arises because there are many producers and consumers in the market, the goods are homogeneous, and there are no barriers to entry or exit.

Question 9

Richard raises Rhode Island Red chickens. Consumers, when buying chicken in the supermarket, view all other types of chickens as perfect substitutes for the Rhode Island Red. There are no barriers to entry in the chicken industry and, as a result, there are many, many chicken producers. An economist knows that
A) if Richard raises his price, he differentiates his chickens from the others on the market
B) the demand curve Richard faces is horizontal
C) if Richard lowers his price, he differentiates his chickens from the others on the market
D) Richard can increase brand loyalty and market share by advertising
E) Richard's relevant market is not chicken

Accepted Answer

The demand curve Richard faces is horizontal because consumers view all types of chickens as perfect substitutes, indicating a perfectly competitive market where producers are price takers, and any attempt to raise prices would result in losing all customers to competitors.

Question 10

You probably know why firms advertise. But the incentives to advertise vary from market structure to market structure. In which market structure is there a weak, but still existent, reason to advertise?
A) monopoly
B) oligopoly
C) monopolistic competition
D) perfect competition
E) there is no weak incentive-they are always strong

Accepted Answer

In a monopoly, the incentive to advertise is weaker compared to other market structures because the firm faces no competition. However, monopolies might still advertise to increase demand or inform consumers about their product, hence the existence of a weak incentive.

Question 11

When you watch a professional football game, you may see the Nike swoosh on the players' jerseys. When you see people on the street, you may see people wearing Nike T-shirts or Nike shoes. It seems, at times, most everybody sports that swoosh. You are likley to say: "Gosh, Nike must be a monopoly." But think twice. Is it? To define the market it's in, it would be most helpful if you had information concerning
A) its prices relative to those of other firms producing similar goods, such as Reebok
B) the shape of its demand curve
C) its cross elasticities of demand with other goods and its market share
D) whether or not brand loyalty exists
E) whether it advertises or not

Accepted Answer

Cross elasticities of demand and market share provide insights into how substitutable Nike's products are with others and its dominance in the market, which are crucial for defining its market power and potential monopoly status.

Question 12

-In Exhibit J-3, which of the goods share a market with Good A? Explain your

Accepted Answer

The answer of 
-In Exhibit J-3, which of the goods...

Question 13

Does the amusement park Six Flags Over Texas, in Arlington, Texas, share a market with the Texas Rangers pro baseball team, also located in Arlington, Texas? And if so, which one? Explain.

Accepted Answer

The answer of Does the amusement park Six Flags Over...

Question 14

Beanie Babies are popular stuffed animals sold by the Ty Corporation. Explain whether or not Ty is a monopoly.

Accepted Answer

The answer of Beanie Babies are popular stuffed animals sold...

Question 15

Why would the government create monopoly power by granting a firm a patent that prevents other firms from competing with the patent holder?

Accepted Answer

The answer of Why would the government create monopoly power...

Question 16

Explain whether or not Ocean Spray cranberry juice, Sprite, Borden milk, Pepsi Lite, grape Kool-Aid, and Diet Dr. Pepper compete in the same market as Coca-Cola Classic.

Accepted Answer

The answer of Explain whether or not Ocean Spray cranberry...

Question 17

Each ounce of salt is chemically identical to every other ounce. Why then, does the Morton brand salt sell at your supermarket for a higher price than the store brand?

Accepted Answer

The answer of Each ounce of salt is chemically identical...

Question 18

The New York Times reported in August 1997 that over one-third of all bottled water sold in the United States is simply filtered tap water. For example, the Everest brand of water comes from the municipal water supply of Corpus Christi, Texas. Explain why consumers will pay more than $1 for a quart of water, whenthey could get basically the same quart directly from the tap for the smallest fraction of a penny.

Accepted Answer

The answer of The New York Times reported in August...

Question 19

Lawn-care services in Dallas, Texas, charge $20 to mow an average-sized yard. Explain why there is little deviation from this rate.

Accepted Answer

The answer of Lawn-care services in Dallas, Texas, charge $20...

Question 20

Imagine that you own a firm that operates in a perfectly competitive industry. What will happen to the market price in your industry if you decide to triple your output?

Accepted Answer

The answer of Imagine that you own a firm that...

Quiz 10: Identifying Markets and Market Structures

If a perfectly competitive firm doubles its output,

Barriers to entry in a perfectly competitive industry

According to the text, grass mowing, T-shirt production, and potato farming are examples of firms

If a perfectly competitive firm raises its price,

A perfectly competitive firm need never consider

Diane Rae is a farmer in the perfectly competitive industry of sugar cane. She knows that she can sell more output than she currently does

Fred Monroe is a fisherman in the perfectly competitive fish industry in northern Minnesota. After years of experience, he knows that the demand curve for the fish he sells is

When a producer's demand curve is a horizontal straight line, we know that

You probably know why firms advertise. But the incentives to advertise vary from market structure to market structure. In which market structure is there a weak, but still existent, reason to advertise?