Profit Maximizing Under Perfect Competition And Monopoly – MCQs

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1.In markets that are contestable, how do dominant oligopoly firms typically behave?

like firms in monopolistic competitionas a cartellike perfectly competitive firmsas a monopoly

2.According to the kinked demand curve model in oligopoly markets, how does the elasticity of demand behave when prices change?

Demand is less responsive to price hikes than to price drops.Demand becomes perfectly elastic when prices rise and perfectly inelastic when prices fall.Demand elasticity remains unchanged regardless of price fluctuations.Demand is more sensitive to price increases than to price decreases.Demand elasticity varies unpredictably with price changes.

3.Under which scenario is a cartel most likely to be successful?

The copper industry, characterized by a limited number of producers and a uniform product.The fast-food sector, with many competitors but demand for fast food is relatively unresponsive to price changes.The coffee market, where the product is homogeneous but there are numerous growers involved.The car manufacturing industry, which has few manufacturers but products vary significantly.

4.What term describes an agreement between parties to set prices and output levels collectively?

5.What do we call an industry where only a few companies hold the majority of market power?

an industry engaged in collusionan industry formed by mergersa concentrated industryan industry with a natural monopolyan industry with many competitors

6.Which market structure consists of a small number of large companies, each capable of affecting the price in the market?

7.Which statement most accurately reflects the outcome in a market characterized by monopolistic competition?

The market is efficient in output quantity but inefficient since production costs exceed the lowest average total cost.The market achieves efficiency because free entry drives economic profits to zero over time.The market is inefficient because it produces less output than optimal and does so at a cost higher than the minimum average total cost.The market is inefficient due to insufficient output, yet the production occurs at the minimum average total cost.None of the above statements correctly describe the outcome.

8.In a monopolistically competitive market, how does a firm increase the quantity of goods it sells?

It offers a constant quantity of product no matter the price.It needs to increase the price to boost sales volume.It can sell unlimited units at the prevailing market price.It has to reduce the price to sell additional units.

9.How do firms in monopolistic competition gain a certain level of market power?

By offering products that are distinct from those of competitorsDue to obstacles preventing firms from leaving the marketSimply because of their large sizeAs a result of difficulties for new firms to enter the market

10.In contestable markets, how do dominant oligopoly firms typically behave?

11.From the perspective of society, when would a monopolist's actions lead to a more favorable outcome?

Offer fewer goods while increasing the priceIncrease production but raise the priceExpand output and reduce the priceLimit production and lower the price

12.If a monopolist is operating at the point where profits are maximized, which of the following statements must be true?

The firm has achieved the highest possible total revenue.The price charged is the same as the average cost.Marginal revenue is equal to marginal cost.The difference between marginal revenue and marginal cost is at its peak.

13.How does the slope of the marginal revenue curve compare to that of the demand curve?

It is consistently equal to one.It is half as steep as the demand curve.It matches the slope of the demand curve exactly.It is twice as steep as the demand curve.It is unrelated to the demand curve's slope.

14.How are economic profits best defined?

The gap between total income and overall expenses.Returns exceeding the usual opportunity cost of capital.The total opportunity costs associated with all resources used.A profit level just enough to satisfy owners and investors.

15.What does the term 'normal rate of profit' refer to?

The return on investment exceeding the interest rate of risk-free government securities.The minimum profit level required to satisfy the expectations of owners or investors.The amount remaining after subtracting total costs from total revenue.A profit rate of zero within a perfectly competitive market.

16.What is the term for the time frame during which companies cannot enter or exit an industry?

17.Why do economists argue that the cosmetics sector does not exemplify perfect competition?

Because numerous EU and governmental regulations govern cosmetic goodsDue to the presence of an extensive number of companies in the marketBecause companies invest heavily in promotional activitiesSince both manufacturers and sellers enjoy substantial profit margins

18.When a company possesses some level of market power, how is the product's selling price affected?

It has no effect on the quantity of the product demanded.The firm can actively set the price as part of its strategy.The price will always exceed the firm's average cost.The price is set based on competitors' decisions.

19.What does market power refer to in the context of a firm?

A company's capability to fully dominate a market as a monopoly.A company's capacity to increase prices without losing all its customers.A company's ability to sell any quantity of goods at the prevailing market price.A company's freedom to set any price it wishes for its products.

20.Under what condition will a company decide to cease operations temporarily in the short term?

When fixed expenses are greater than income.If the business is operating at a loss.When the revenue does not cover the variable costs.If the overall costs surpass the total income.