Multiple Choice
Identify the choice that best completes the
statement or answers the question.
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1.
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Sunshine Island has three large supermarkets that supply most of the groceries
for the island’s population. A gas station also sells a very small selection of groceries. How
would you describe the market for groceries on Seaside Island?
a. | monopoly | c. | monopolistic competition | b. | perfect
competition | d. | oligopoly |
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2.
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When the government deregulates a product or service, what happens to it?
a. | Government control over the industry is stopped. | b. | Some government
regulations over the industry are eliminated. | c. | The product or service becomes
cheaper. | d. | The product or service is available to more people. |
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3.
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Cartels are difficult to operate for which of the following reasons?
a. | They work only if members keep to their agreed output. | b. | Firms in a cartel
are likely to lose money. | c. | They are illegal worldwide. | d. | The products are
perfectly competitive. |
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4.
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If a firm enjoys economies of scale,
a. | its marginal revenue will increase as production increases. | b. | its total costs will
decrease as production increases. | c. | its average total cost will increase as
production increases. | d. | its average total cost will decrease as
production increases. |
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5.
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What happens to a monopolistically competitive firm that begins to charge an
excessive price for its product?
a. | Consumers will boycott the product. | b. | Consumers will substitute a rival’s
product. | c. | The government will regulate the price. | d. | The firm will go out
of business. |
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6.
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How much control over price do companies in a perfectly competitive market
have?
a. | very little | c. | total control | b. | some | d. | none |
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7.
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Which of the following statements is true about profits in a monopolistically
competitive market?
a. | Profits are rare in monopolistically competitive markets. | b. | Most firms will earn
substantial profits from year to year. | c. | Monopolistically competitive firms are as
profitable as monopoly firms. | d. | Many firms will earn profit in the short term,
but they must constantly innovate and compete to earn profits in the long
term. |
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8.
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Why do companies practice price discrimination?
a. | Price discrimination allows companies to defend an illegal monopoly against free
market competition. | b. | Price discrimination enables companies to
charge all consumers the same price for a good or service. | c. | Price discrimination
recognizes that groups of consumers are willing and able to pay different amounts and maximizes
profits by charging each group a different price. | d. | Price discrimination provides individual
producers with an advantage in perfectly competitive markets. |
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9.
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Which of the following markets is an example of monopolistic competition?
a. | bus tickets | c. | oranges | b. | water | d. | bookbags |
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10.
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Complete this sentence: In a monopoly market, the market price will be _____ the
price in a perfectly competitive market.
a. | greater than | c. | equal to | b. | less than | d. | greater than or less
than |
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11.
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Which of these will NOT lead to a monopoly?
a. | a patent | c. | antitrust laws | b. | a license | d. | a franchise |
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12.
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Which of the following is NOT a condition for perfect competition?
a. | Many buyers and sellers participate in the market. | b. | Buyers and sellers
are well informed about products. | c. | Sellers offer a wide variety of
products. | d. | Sellers are able to enter and exit the market freely. |
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13.
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Which of these industries has NOT been considered a natural monopoly in the past
30 years?
a. | electricity | c. | phone service | b. | diamonds | d. | water |
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14.
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How does a natural monopoly function?
a. | The government supplies all buyers with the product. | b. | Imperfect
competition makes it difficult for firms to do business. | c. | A single firm
supplies all the output. | d. | A few firms are in perfect
competition. |
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15.
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Which of the following is a product that is considered a commodity?
a. | feed corn for cattle | c. | writing paper | b. | automobiles | d. | apples |
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16.
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Which of these companies has NOT been forced to split up by the federal
government?
a. | Microsoft | c. | Standard Oil Trust | b. | American Tobacco Company | d. | AT&T |
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17.
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How does a company arrange to sell its products to people who are unwilling to
pay the top price for them?
a. | by allowing rebates to some preferred customers who buy a lot of
goods | b. | by changing the product and selling a lesser one to people who are unwilling to pay
for the top product | c. | by charging each customer the maximum amount
they are willing to pay | d. | by charging different prices according to the
group to which the buyer belongs |
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18.
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What is one of the effects that the Internet has had on business?
a. | It has reduced start-up costs for many businesses. | b. | It has decreased the
kinds of goods that are available to individual buyers. | c. | It has increased the
prices of goods that are not bought on the Internet. | d. | It has led to new monopolies in many
industries. |
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19.
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What is monopolistic competition?
a. | a very few companies selling identical products | b. | many companies
selling similar but not identical products | c. | one company selling the identical product under
different names | d. | one company selling several different products under different
names |
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20.
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A monopolist will set its production at a level where marginal cost is equal
to
a. | marginal revenue. | c. | total revenue. | b. | the equilibrium market
price. | d. | quantity
supplied. |
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21.
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Complete this sentence: In a monopoly market, the market quantity sold will be
_____ the quantity sold in a perfectly competitive market.
a. | less than | c. | equal to | b. | greater than or less than | d. | greater than |
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22.
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Which of the following is NOT a form of nonprice competition?
a. | discounts | c. | location | b. | physical characteristics | d. | advertising |
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23.
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What was the chief effect of the Sherman Antitrust Act?
a. | The federal government repealed regulations that controlled the airline and trucking
industries. | b. | The federal government won the power to prevent monopolies and mergers that
interfered with trade between states. | c. | John D. Rockefeller formed the Standard Oil
Trust as a protected natural monopoly. | d. | Microsoft required personal computer
manufacturers to include its web browser with the Microsoft Windows operating
system. |
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24.
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Which of these is an example of economies of scale?
a. | An Internet access company charges customers different rates for using the Internet
at different times of day. | b. | A restaurant charges customers $1 a glass for
water that was once provided for free. | c. | A ranch increases its profits by expanding from
400 to 800 cattle without buying or renting additional land. | d. | A shoe store finds
it can increase profits by hiring high school students who are willing to work for minimum
wage. |
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25.
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What is the definition of an oligopoly?
a. | one firm producing 95 percent of the output | b. | eight to ten firms
producing 60 percent to 70 percent of the output | c. | eight to ten firms producing 90 percent of the
output | d. | two to four firms producing 70 percent to 80 percent of the
output |
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26.
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What kind of market runs most efficiently when one large firm supplies all of
the output?
a. | perfect competition | c. | a natural monopoly | b. | imperfect competition | d. | a network |
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27.
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What is one kind of monopoly that the U.S. government generally permits?
a. | low-price gasoline | c. | certain kinds of medications | b. | the telephone
company | d. | professional sports
leagues |
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28.
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Which of the following industries have been deregulated in recent years?
a. | low-cost housing | c. | pharmaceuticals | b. | steel | d. | airlines |
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29.
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Which of the following is NOT an example of barriers to entry?
a. | A person who wishes to practice medicine is required to attend medical school,
complete an internship, and pass a state exam. | b. | Cable companies must lay miles of undergound
cable before they can serve a single customer in a new market. | c. | In some counties,
laws require retail stores to be closed on Sundays. | d. | An entrepreneur wishing to own a clothing store
must rent a building, hire workers, and buy clothing for sale. |
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30.
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When is a buyer NOT willing to spend a lot of time and energy researching the
market?
a. | when there are many identical products available | b. | when prices vary but
quality is the same | c. | when buying a large quantity of
goods | d. | when the savings to be made are small |
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31.
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Why does the government sometimes give monopoly power to a company by issuing a
patent?
a. | The company makes a product better than anyone else’s. | b. | The company can then
profit from their research without competition. | c. | The company pays the government for the
patent. | d. | The government does not want competition for the
product. |
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Matching
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Identifying Key Terms
Match each term with the correct
statement below. a. | economies of scale | f. | price war | b. | trust | g. | antitrust laws | c. | franchise | h. | market power | d. | oligopoly | i. | differentiation | e. | barrier to entry | j. | perfect
competition |
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32.
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the right to sell a good or service within an exclusive market
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33.
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factors that cause a producer’s average cost per unit to fall as output
rises
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34.
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a series of competitive price cuts that lowers the market price below the cost
of production
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35.
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a market structure in which a large number of firms all produce the same
product
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36.
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an illegal grouping of companies that discourages competition
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37.
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making a product unlike other products
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38.
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any factor that makes it difficult for a new firm to become part of a
market
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39.
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a market structure in which a few large firms dominate a market
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Identifying Key Terms
Match each term with the correct
statement below. a. | start-up costs | f. | commodity | b. | merger | g. | price fixing | c. | cartel | h. | price discrimination | d. | license | i. | monopoly | e. | deregulation | j. | patent |
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40.
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division of customers into groups based on how much they will pay for a
good
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41.
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a market dominated by a single seller
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42.
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a product that is considered the same no matter who produces it
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43.
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the expenses a firm must pay before it can begin to produce and sell
goods
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44.
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a government-issued right to operate a business
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45.
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combination of two or more companies into a single firm
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46.
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the removal of some government controls over a market
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47.
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a license that gives the inventor of a new product the exclusive right to sell
it for a certain period of time
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