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Question Bank - Economics

Firms: Market structure

Q1. Which of the following is not a characteristic of a competitive market?

(Select one answer)

(a) * All of these answers are characteristics of a competitive market
(b) * There are many buyers and sellers in the market
(c) * The goods offered for sale are largely the same
(d) * Firms generate small but positive economic profits in the long run
(e) * Firms can freely enter or exit the market

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Q2. TWhich of the following markets would most closely satisfy the requirements for a competitive market?

(Select one answer)

(a) * electricity
(b) * cable television
(c) * cola
(d) * milk
(e) * All of these answers represent competitive markets

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Q3. The competitive firm maximizes profit when it produces output up to the point where

(Select one answer)

(a) * price equals average variable cost
(b) * marginal revenue equals average revenue
(c) * marginal cost equals total revenue
(d) * marginal cost equals marginal revenue

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Q4. If firms in the toothpaste industry have the following market shares, which market structure would best describe the industry?
Market share (% of market)
Toothipaste 18.7
Dentipaste 14.3
Shinibright 11.6
I can't believe it's not toothpaste 9.4
Brighter than white 8.8
Pastystuff 7.4
Others 29.8


(Select one answer)

(a) * Perfect competition
(b) * Monopolistic competition
(c) * Oligopoly
(d) * Monopoly

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Q5. The market for hand tools (such as hammers and screwdrivers) is dominated by Draper, Stanley, and Craftsman. This market is best described as

(Select one answer)

(a) * monopolistically competitive
(b) * a monopoly
(c) * an oligopoly
(d) * competitive

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Q6. Which of the following are NOT conditions of perfect competition?

(Select one or more answers)

(a) * A large number of firms
(b) * Similar products
(c) * Perfect mobility of factors
(d) * Informative advertising to ensure that consumers have good information
(e) * Freedom of entry and exit into and out of the market



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Q7. A market structure in which many firms sell products that are similar but not identical is known as

(Select one answer)

(a) * monopolistic competition
(b) * monopoly
(c) * perfect competition
(d) * oligopoly

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Q8. When an oligopolist individually chooses its level of production to maximize its profits, it charges a price that is

(Select one answer)

(a) * more than the price charged by either monopoly or a competitive market
(b) * less than the price charged by either monopoly or a competitive market
(c) * more than the price charged by a monopoly and less than the price charged by a competitive market
(d) * less than the price charged by a monopoly and more than the price charged by a competitive marke

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Q9. Fill in the blanks in the paragraph below to give a good description of the level of efficiency in a perfectly competitive market. (Please type equations in capitals and with no spaces)


(Type your answer)




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Q10. In long-run equilibrium in a competitive market, firms are operating at

(Select one answer)

(a) * the minimum of their average-total-cost curves.
(b) * all of these answers are correct
(c) * their efficient scale
(d) * zero economic profit
(e) * the intersection of marginal cost and marginal revenue

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Q11. Which of the following is not a characteristic of a monopolistically competitive market?

(Select one answer)

(a) * free entry and exit
(b) * long-run economic profits
(c) * many sellers
(d) * differentiated products

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Q12. Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly?

(Select one answer)

(a) * The monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve
(b) * The monopolist charges a price above marginal cost while the monopolistic competitor charges a price equal to marginal cost
(c) * The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run
(d) * Both the monopolist and the monopolistic competitor operate at the efficient scale

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Q13. As the number of sellers in an oligopoly increases,

(Select one answer)

(a) * output in the market tends to fall because each firm must cut back on production
(b) * the price in the market moves further from marginal cost
(c) * collusion is more likely to occur because a larger number of firms can place pressure on any firm that defects
(d) * the price in the market moves closer to marginal cost

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Q14. Suppose that ABC Publishing sells an economics textbook and accompanying study guide. Roberto is willing to pay €75 for the text and €15 for the study guide. Marie is willing to spend €60 for the text and €25 for the study guide. Suppose both the book and study guide have a zero marginal cost of production. If ABC Publishing engages in tying the two products, its best strategy is to charge a combined price of

(Select one answer)

(a) * €60
(b) * €90
(c) * €85
(d) * €75
(e) * €80

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Q15. Collusion is difficult for an oligopoly to maintain

(Select one answer)

(a) * all of these answers
(b) * if additional firms enter of the oligopoly
(c) * because antitrust laws (also known as competition laws) make collusion illegal
(d) * because, in the case of oligopoly, self-interest is in conflict with cooperation

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Click to view your total score for all the above questions that you have attempted.

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