Market Structure

Q1: In which of the following industry structures is the entry of new firms the most difficult?
a) pure monopoly
b) oligopoly
c) monopolistic competition
d) pure competition

Q2: An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of:
a) monopolistic competition.
b) oligopoly.
c) pure monopoly.
d) pure competition.

Q3: An industry comprised of four firms, each with about 25 percent of the total market for a product is an example of:
a) monopolistic competition.
b) oligopoly.
c) pure monopoly.
d) pure competition

Q4: An industry comprised of a very large number of sellers producing a standardized product is known as:
a) monopolistic competition.
b) oligopoly.
c) pure monopoly.
d) pure competition.

Q5: Mutual interdependence would tend to limit control over price in which market model?
a) monopolistic competition
b) pure competition
c) pure monopoly
d) oligopoly

Q6: In which two market models would advertising be used most often?
a) pure competition and monopolistic competition
b) pure competition and pure monopoly
c) monopolistic competition and oligopoly
d) pure monopoly and oligopoly

Q7: There is no control over price by firms in:
a) oligopoly.
b) pure monopoly.
c) pure competition.
d) monopolistic competition.

Q8: Which idea is inconsistent with pure competition?
a) short-run losses
b) product differentiation
c) freedom of entry or exit for firms
d) a large number of buyers and sellers

Q9: The retail trade for clothing would be an example of which market model?
a) monopolistic competition
b) pure competition
c) pure monopoly
d) oligopoly

Q10: Which is not a required characteristic of a purely competitive industry?
a) Industry demand is highly elastic.
b) Firms can enter or leave the industry.
c) There are enough firms so that none can influence market price.
d) Consumers have no reason to prefer one firm's product to another because products are homogeneous.

Q11: A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 800 units is R3.50. The minimum possible average variable cost is R3.00. The market price of the product is R4.00. To maximize profit or minimize losses, the firm should:
a) continue producing 800 units.
b) produce less than 800 units.
c) produce more than 800 units.
d) shut down.

Q12: A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is R3.00 and the market price is R2.50. What should the firm do?
a) shut down if the minimum possible average variable cost is R2.00
b) increase output if the minimum possible average variable cost is R2.00
c) increase output if the minimum possible average variable cost is R2.50
d) decrease output if the minimum possible average variable cost is R2.00

TRUE/FALSE
The demand curve for a purely competitive industry is perfectly elastic, but the demand curves faced by individual firms in such an industry are down sloping.
a) True
b) False

Refer to the above diagram. At the profit-maximizing output total revenue will be 0GLD.
a) True
b) False
As a monopolist increases its output, it finds that its total revenue at first increases, and that after some output level is reached, its total revenue begins to decrease.
a) True
b) False

CALCULATION
Suppose that a monopolistically competitive restaurant is currently serving 280 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $12 per meal.

Instructions: Enter your answers as whole numbers.

a. What is the size of this firm's profit or loss?

b. Will there be entry or exit? Will this restaurant's demand curve shift left or right?

c) Assume that the allocatively efficient output level in long-run equilibrium is 220 meals. In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. What is the size of the firm's profit?

d) Suppose that the allocatively efficient output level in long-run equilibrium is 220 meals. In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. Is the deadweight loss for this firm greater than or less than $120?