Question 1

What are some of the causes of barriers to entry?

Accepted Answer

• Economies of scale - average costs fal...

Question 2

The fast food industry is not considered perfectly competitive because

Accepted Answer

A)   the firms all produce an identical product.
B)   the firm's products are differentiated.
C)   entry and exit are strictly regulated by the government.
D)   there are a very large number of firms.E) A) and C)
F) None of the above

Question 3

Under perfect competition, a firm will increase output if marginal cost is less than price.

Accepted Answer

A) True 
 B)False  TRUE

Question 4

Why is costless exit so important in a contestable market?

Accepted Answer

When a firm sets up a new business it wi...

Question 5

The wool industry is a perfectly competitive industry. It is difficult for a wool producer to make excess profits because

Accepted Answer

A)   the demand curve facing each wool producer is perfectly elastic.
B)   of the assumption that wool producers in the industry do not 'differentiate' their products.
C)   wool producers are 'price- takers'
D)   of the assumption of free entry into the wool industry.E) B) and C)
F) A) and B)

Question 6

The degree of competition in an industry can be calculated by measuring the

Accepted Answer

A)   circulation ratio.
B)   circulation denominator.
C)   concentration ratio.
D)   concentration numerator.E) A) and B)
F) C) and D)

Question 7

Which one of the following is true for the marginal firm under perfect competition?

Accepted Answer

A)   Whether it earns normal or supernormal profits in the SR and LR will depend on the conditions in that particular industry.
B)   It can earn supernormal profits in both the SR and LR.
C)   It can earn supernormal profits in the LR but only normal profits in the SR.
D)   It can earn only normal profits in both the SR and LR.
E)   It can earn supernormal profits in the SR but only normal profits in the LR.F) A) and D)
G) A) and C) E

Question 8

The following diagram shows cost and revenue curves of a monopolist.
 The firm will produce at an output where

Accepted Answer

A)   MC = AR
B)   MC = MR
C)   MC = AC
D)   MR = ACE) None of the above
F) B) and C)

Question 9

Which of the following statements about contestable markets is false?

Accepted Answer

A)   The higher the entry costs to the industry, the greater the threat of competition.
B)   If there is potential competition, a monopolist may be forced to behave as if it were in a competitive market.
C)   The lower the exit costs from the industry, the greater the threat of competition.
D)   The threat of competition has a similar effect to actual competition.
E)   Monopolies may remain because of economies of scale and the size of the market.F) C) and E)
G) All of the above

Question 10

In June 2000 a US Federal Judge ruled that Microsoft  should be split into two in order to

Accepted Answer

A)   achieve economies of scale.
B)   prevent it operating as a monopoly.
C)   improve the stability of the Windows  operating system.
D)   increase product development.
E)   create more employment.F) B) and E)
G) B) and D)

Question 11

Explain the four decisions that must be made by a firm that has market power, i.e. a monopolist.

Accepted Answer

A firm with market power must ...

Question 12

A 5- firm concentration ratio shows

Accepted Answer

A)   the proportion of industries in the economy that have just five firms.
B)   the size of the largest firm relative to the total size of the five largest firms.
C)   the share of industry profits earned by the five largest firms.
D)   the output of good X produced by the five largest firms, as a proportion of their total output of all types of goods.
E)   the sales of the five largest firms, as a proportion of the total industry sales.F) A) and C)
G) A) and D)

Question 13

If entry and exit are not costless, a monopoly can still make supernormal profits in the long run.

Accepted Answer

A) True 
 B)False

Question 14

A monopolist will always sell in the inelastic portion of its demand curve.

Accepted Answer

A) True 
 B)False

Question 15

If a natural monopoly is broken up into smaller competing firms, the price of the product will increase because the smaller competing firms will face higher average costs of production than the natural monopolist.

Accepted Answer

A) True 
 B)False

Question 16

You live in a small town where there is only one Indian restaurant. The next Indian restaurant is 30 miles away. Is the Indian restaurant in your town a monopoly?

Accepted Answer

A)   No, because there are Indian restaurants in other towns.
B)   Yes, because the demand curve facing the Indian restaurant is downward- sloping.
C)   No, because there are close substitutes for the Indian restaurant such as other restaurants in town and Indian food sold in the local supermarket.
D)   Yes, because it is the only Indian restaurant in the town.E) A) and B)
F) A) and C)

Question 17

The assumption of free entry implies that

Accepted Answer

A)   a firm in monopolistic competition can never earn a profit.
B)   firms will always earn a profit since new firms can enter the industry at any time they like.
C)   the government regulates the number of firms that are allowed in an industry.
D)   if firms in an industry are making excessively high profits, new firms are likely to enter the industry.E) All of the above
F) B) and C)

Question 18

The following cost and revenue data apply to a monopolist. Start by identifying the missing figures.
  Based on these figures, what is the profit- maximising output?

Accepted Answer

A)   5 units
B)   3 units
C)   2 units
D)   4 units
E)   1 unitF) B) and C)
G) B) and E)

Question 19

How would you classify the market for parcels delivery?

Accepted Answer

A)   Slightly contestable
B)   Moderately contestable
C)   Highly contestable
D)   Not contestableE) A) and B)
F) C) and D) C

Question 20

Economies of scope occur when a firm's average costs are lower because it produces a range of products.

Accepted Answer

A) True 
 B)False

Exam 11: Profit Maximisation Under Perfect Competition and Monopoly

What are some of the causes of barriers to entry?

Correct Answerverified• Economies of scale - average costs fal...View AnswerShow Answer

The fast food industry is not considered perfectly competitive because

Correct AnswerverifiedShow Answer

Under perfect competition, a firm will increase output if marginal cost is less than price.

Correct AnswerverifiedTRUE

Why is costless exit so important in a contestable market?

Correct AnswerverifiedWhen a firm sets up a new business it wi...View AnswerShow Answer

The wool industry is a perfectly competitive industry. It is difficult for a wool producer to make excess profits because

Correct AnswerverifiedShow Answer

The degree of competition in an industry can be calculated by measuring the

Correct AnswerverifiedShow Answer

Which one of the following is true for the marginal firm under perfect competition?

Correct AnswerverifiedE

The following diagram shows cost and revenue curves of a monopolist. The firm will produce at an output where

Correct AnswerverifiedShow Answer

Which of the following statements about contestable markets is false?

Correct AnswerverifiedShow Answer

In June 2000 a US Federal Judge ruled that Microsoft should be split into two in order to

Correct AnswerverifiedShow Answer

Explain the four decisions that must be made by a firm that has market power, i.e. a monopolist.

Correct AnswerverifiedA firm with market power must ...View AnswerShow Answer

A 5- firm concentration ratio shows

Correct AnswerverifiedShow Answer

If entry and exit are not costless, a monopoly can still make supernormal profits in the long run.

Correct AnswerverifiedShow Answer

A monopolist will always sell in the inelastic portion of its demand curve.

Correct AnswerverifiedShow Answer

If a natural monopoly is broken up into smaller competing firms, the price of the product will increase because the smaller competing firms will face higher average costs of production than the natural monopolist.

Correct AnswerverifiedShow Answer

You live in a small town where there is only one Indian restaurant. The next Indian restaurant is 30 miles away. Is the Indian restaurant in your town a monopoly?

Correct AnswerverifiedShow Answer

The assumption of free entry implies that

Correct AnswerverifiedShow Answer

The following cost and revenue data apply to a monopolist. Start by identifying the missing figures. Based on these figures, what is the profit- maximising output?

Correct AnswerverifiedShow Answer

How would you classify the market for parcels delivery?

Correct AnswerverifiedC

Economies of scope occur when a firm's average costs are lower because it produces a range of products.

Correct AnswerverifiedShow Answer

Correct Answer
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• Economies of scale - average costs fal...
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TRUE

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When a firm sets up a new business it wi...
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E

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In June 2000 a US Federal Judge ruled that Microsoftshould be split into two in order to

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A firm with market power must ...
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C

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