Dr.

Ahmed El-Feqi
Revision chapter 5
1) Perfect competition is an industry with
A) a few firms producing identical goods.
B) many firms producing goods that differ somewhat.
C) a few firms producing goods that differ somewhat in quality.
D) many firms producing identical goods.

2) In a perfectly competitive industry, there are

A) many buyers and many sellers.
B) many sellers, but there might be only one or two buyers.
C) many buyers, but there might be only one or two sellers.
D) one firm that sets the price for the others to follow.

3) In perfect competition, the product of a single firm

A) is sold to different customers at different prices.
B) has many perfect complements produced by other firms.
C) has many perfect substitutes produced by other firms.
D) is sold under many differing brand names.

4) In perfect competition, restrictions on entry into an industry

A) do not exist. B) apply to labor but not to capital.
C) apply to both capital and labor. D) apply to capital but not to labor.

5) In perfect competition,
A) there are significant restrictions on entry.
B) each firm can influence the price of the good.
C) there are few buyers.
D) all firms in the market sell their product at the same price.

7) The demand for wheat from farm A is perfectly elastic because wheat from farm A is a(n)
A) perfect complement to wheat from farm B.
B) perfect substitute for wheat from farm B.
C) normal good.
D) inferior good.

8) The following are key features of a monopoly EXCEPT

A) diseconomies of scale. B) no close substitutes.
C) influence over price. D) barriers to entry.

9) Which of the following statements about a monopoly is FALSE?

A) A monopoly is the only supplier of the good.
B) Monopolies have no barriers to entry or exit.
C) The good produced by a monopoly has no close substitutes.
D) None of the above; that is, all of the above answers are true statements about a monopoly.

10) Which of the following is LEAST likely to be a monopoly?

A) the sole owner of an occupational license
B) a pharmaceutical company with a patent on a drug
C) a store in a large shopping mall
D) the holder of a public franchise

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11) Public franchises create monopolies by restricting
A) entry. B) demand. C) prices. D) profit.

12) A patent grants

A) a guarantee of quality to consumers.
B) an exclusive right to an inventor of a product.
C) the right to practice a profession.
D) control over a unique source or supply of raw materials.

13) Patents create monopolies by restricting

A) prices. B) profit. C) entry. D) demand.

14) Patents are ________ barriers to entry and public franchises are ________ barriers to entry.
A) legal; legal B) legal; natural C) natural; natural D) natural; legal

15) A defining characteristic of a natural monopoly is that

A) it exists because of legal barriers to entry.
B) it has no close substitutes.
C) its average total cost curve slopes downward as it intersects the demand curve.
D) its demand curve slopes downward.

16) An industry in which one firm can supply the entire market at a lower price than two or more
firms can is called a
A) legal monopoly. B) single-price monopoly.
C) natural monopoly. D) price-discriminating monopoly.

17) Which of the following is true of a natural monopoly?

A) The firm can supply the entire market at a lower cost than could two or more firms.
B) Its average total cost curve slopes upward as it intersects the demand curve.
C) The firm is not protected by any barrier to entry.
D) Economies of scale exist to only a very low level of output.

18) A market in which competition and entry are restricted by the granting of a public franchise,
government license, patent, or copyright is called a
A) price-discriminating monopoly. B) single-price monopoly.
C) natural monopoly. D) legal monopoly.

19) A monopolistically competitive firm has ________ power to set the price of its product because ________.
A) no; there are no barriers to entry B) some; there are barriers to entry
C) some; of product differentiation D) no; of product differentiation

20) One difference between perfect competition and monopolistic competition is that
A) a perfectly competitive industry has fewer firms.
B) monopolistic competition has barriers to entry.
C) firms in monopolistic competition face a downward-sloping demand curve.
D) in perfect competition, firms produce slightly differentiated products.

21) In monopolistically competitive industries,

A) firms are not sensitive to changes in consumer demand.
B) the amount of variety in products is the same as in perfectly competitive industries.
C) non-price competition through product differentiation is vigorous.
D) firms produce where marginal cost exceeds the marginal benefit to consumers.

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22) Firms in monopolistic competition make products that are
A) close but not perfect substitutes. B) perfect substitutes.
C) close but not perfect complements. D) perfect complements.

23) A characteristic of monopolistic competition is

A) a low ratio of fixed to variable costs. B) a high capital -output ratio.
C) product differentiation. D) the absence of ad vertising.

24) Product differentiation is a defining characteristic of

A) perfectly elastic demand. B) perfect competition.
C) oligopoly. D) monopolistic competition.

25) A monopolistically competitive industry has

A) a small number of large firms. B) differentiated products.
C) significant barriers to entry. D) mutually dependent firms.

26) Firms in monopolistic competition can achieve product differentiation by

A) exploiting economies of scale in production.
B) advertising special characteristics.
C) expanding plant size.
D) setting the price equal to average revenue.

27) An example of a monopolistically competitive industry is

A) phone service. B) the restaurant industry.
C) wheat farming. D) the automobile industry.

1) D
2) A
3) C
4) A
5) D
7) B

8) A
9) B
10) C
11) A
12) B
13) C
14) A
15) C
16) C
17) A
18) D
19) C
20) C
21) C
22) A
23) C
24) D
25) B
26) B
27) B

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3) A perfectly competitive firm
A) sells a product that has perfect substitutes.
B) has a perfectly inelastic demand.
C) has a perfectly elastic supply.
D) Answers A and B are correct.
E) Answers A and C are correct.
Answer: A

4) In which market structure do firms exist in very large numbers, each firm produces an identical
product, and there is freedom of entry and exit?
A) monopoly
B) oligopoly
C) only perfect competition
D) only monopolistic competition
E) both perfect competition and monopolistic competition
Answer: C

5) The characteristics that describe a perfectly competitive industry include

A) many firms selling an identical product.
B) one firm selling to many buyers.
C) many firms selling a slightly differentiated product.
D) a few firms selling to many buyers.
E) None of the above answers is correct.
Answer: A

7) In which of the following market types do all firms sell products so identical that buyers do not care
from which firm they buy?
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
E) perfect competition and monopolistic competition
Answer: A

8) Each firm in a perfectly competitive industry

A) produces a good that is slightly different from that of the other firms.
B) produces a good that is identical to that of the other firms.
C) attains economies of scale so that its efficient size is large compared to the market as a whole.
D) has control over at least one unique resource to separate themselves from their competitors.
E) has an important influence on the market price of the good or service being produced.
Answer: B

9) A market in which many firms sell identical products is

A) a monopoly.
B) an oligopoly.
C) only perfectly competition.
D) only monopolistic competition.
E) both perfect competition and monopolistic competition.

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Answer: C

10) One requirement for an industry to be perfectly competitive is that in the industry there
A) are a few firms who control the market.
B) are many firms for whom the efficient scale of production is small.
C) is one firm that sells a product with no close substitutes.
D) are many firms selling different products.
E) is a barrier to entry that makes the entry of new firms difficult.
Answer: B

11) One requirement for an industry to be perfectly competitive is that

A) there are no restrictions on entry into or exit from the market.
B) there are multiple restrictions on entry into or exit from the market.
C) there are many firms selling different products.
D) sellers and buyers have imperfect information about prices.
E) the many firms sell slightly different products.
Answer: A

12) One requirement for an industry to be perfectly competitive is that

A) sellers and buyers have imperfect information about prices.
B) established firms have no advantage over new firms.
C) established firms have a significant advantage over new firms.
D) different firms produce widely different products.
E) many firms produce slightly different products.
Answer: B

13) A perfectly competitive market arises when

A) the market demand is small relative to the output of a firm.
B) there are many buyers but few sellers.
C) the market demand is very large relative to the output of one seller.
D) a firm has control over a unique resource.
E) each of the many firms produces a slightly different product.
Answer: C

14) Perfect competition is characterized by all of the following EXCEPT

A) a large number of buyers and sellers.
B) no restrictions on entry into or exit from the industry.
C) considerable advertising by individual firms.
D) buyers and sellers are well informed about prices.
E) firms produce an identical product.
Answer: C

15) Which of the following is the best example of a perfectly competitive market?
A) farming
B) diamonds
C) athletic shoes
D) soft drinks
E) electricity distribution

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Answer: A

16) Which of the following market types has the fewest number of firms?
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
E) perfect competition and monopolistic competition
Answer: D

17) A monopoly occurs when

A) each of many firms produces a product that is slightly different from that of the other firms.
B) one firm sells a good that has no close substitutes and a barrier blocks entry for other firms.
C) there are many firms producing the same product.
D) a few firms control the market.
E) one firm is larger than the many other firms that make an identical product.
Answer: B

18) In which market structure does one firm sell a good or service with no close substitutes and there is a
barrier blocking the entry of new firms?
A) only monopoly
B) only oligopoly
C) perfect competition
D) monopolistic competition
E) either monopoly or oligopoly
Answer: A

19) When one firm sells a good or service that has no close substitutes and a barrier blocks the entry of
new firms, what type of market is this?
A) perfect competition
B) only monopoly
C) oligopoly
D) only monopolistic competition
E) either monopoly or monopolistic competition
Answer: B

20) ________ a large number of firms competing by making similar but slightly different products.
A) Monopoly requires
B) Perfect competition requires
C) Monopolistic competition requires
D) Oligopoly requires
E) Both perfect competition and monopolistic competition require
Answer: C

21) A market is classified as monopolistically competitive when

A) there is a barrier that blocks entry by other firms.
B) a small number of firms compete.
C) many firms produce the same product.

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D) many firms produce a slightly differentiated product.
E) there is one firm that sells a good or service with no close substitutes.
Answer: D

22) In which market structure is there a large number of firms producing slightly differentiated products?
A) monopoly
B) oligopoly
C) only perfect competition
D) only monopolistic competition
E) either perfect competition or monopolistic competition
Answer: D

23) A market is classified as an oligopoly when

A) a few firms compete.
B) many firms produce a slightly differentiated product.
C) no matter how many firms are in the market, a barrier blocks entry by other new firms.
D) many firms produce the same product.
E) only one firm sells a product with no close substitutes.
Answer: A

24) Which of the following market types has only a few competing firms?
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
E) perfect competition and monopolistic competition
Answer: C

25) In which market structure are there a small number of firms competing?
A) only monopoly
B) only oligopoly
C) perfect competition
D) monopolistic competition
E) either monopoly or oligopoly
Answer: B

26) A market is ________ when a small number of firms compete.

A) a monopoly
B) perfectly competitive
C) monopolistically competitive
D) an oligopoly
E) either monopolistically competitive or an oligopoly
Answer: D