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Microeconomics: Market Structure Questions

1. Firms under perfect competition receives zero profit, because
a. There are too many firms to compete.
b. There are no barriers to entry.
c. There is complete information.
d. The firms' products are identical.
e. All of the above.

2. Under perfect competition, a firm maximizes its profit by setting
a. P = MC because P = MR.
b. P above MC where MC = MR.
c. P = FC.
d. No definite answer.

3. A natural monopoly can charge a price above MC where MC = MR, because
a. it has economies of scale to produce what others cannot duplicate, i.e. there
are natural barriers.
b. there are legal barriers.
c. there are sociological barriers.
d. there are government regulations and restrictions.

4. A firm under monopolistic competition will earn
a. a positive profit as it has some monopoly power.
b. a zero profit as it sets P = MC.
c. a zero profit as its P = ATC.
d. a positive profit as it sets MC = MR.

5. The optimal output and hence the supply curve for an oligopoly is
a. does not exit as it depends on whether firms compete in price or in quantity.
b. the part of MC above its AVC.
c. the part of MC above its ATC.
d. its ATC.

6. A good real-world example for perfect competition is
a. lawyers
b. gas stations
c. Time Warner Cable
d. groceries stores

Solution Preview

1. ANSWER: e) all of the above. All the previous thing ensure that there is perfect competition and that firms only get normal profits... which means profit equals opportunity costs.

2. a. Under perfect competition, the demand is perfectly elastic. That is, all firms have to charge the same price, P = MC because P = MR. This makes total revenue TR = P*Q and P ...

Solution Summary

Firms in industries with different market structures are assessed. Answers to the multiple choice questions are explained in 266 words.