Profit Maximizing Under Perfect Competition & Monopoly Mcqs - Set 4

1)   Which of the following statements is False ?

a. participants in a contestable market are continuously faced with competition or the threat of competition because entry is cheap
b. In a contestable market, economic profits cannot persist in the long run.
c. In a contestable market forces will guarantee that the firms produce efficiently or be driven out of business
d. For a market to be contestable, the product must be produced with a labor-intensive technology
Answer  Explanation 

ANSWER: For a market to be contestable, the product must be produced with a labor-intensive technology

Explanation:
No explanation is available for this question!


2)   A major weakness of the kinked demand curve model of oligopoly is that ?

a. it assumes that firms believe that their rivals will not respond to any price change they initiate
b. it fails to explain how a firm arrived at its price and output decision initially
c. The model cannot be tested empirically.
d. Real-world pricing strategies are more simple than those assumed in this model
Answer  Explanation 

ANSWER: it fails to explain how a firm arrived at its price and output decision initially

Explanation:
No explanation is available for this question!


3)   An oligopoly with a dominant price leader will produce a level of output ?

a. equal to what a monopolist would choose in the same industry
b. between that which would prevail under competition and that which a monopolist would choose in the same industry
c. that would prevail under competition
d. between that which would prevail under competition and that which a monopolistic competitor would choose in the same industry.
Answer  Explanation 

ANSWER: between that which would prevail under competition and that which a monopolist would choose in the same industry

Explanation:
No explanation is available for this question!


4)   A group of firms that gets together to make price and output decisions is called ?

a. a concentrated industry.
b. a cartel
c. price leadership
d. an oligopoly.
Answer  Explanation 

ANSWER: a cartel

Explanation:
No explanation is available for this question!


5)   Assume that firms in an oligopoly are currently colluding to set price and output to maximise total industry profit. If the oligopolists are forced to stop colluding, the price charged by the oligopolists will _________ and the total output produced will __________?

a. decrease; decrease
b. increase; decrease
c. decrease; increase
d. increase; increase
Answer  Explanation 

ANSWER: decrease; increase

Explanation:
No explanation is available for this question!


6)   When one firm in the breakfast cereal market started an advertising campaign that stressed the nutritional value of its cereals, all other cereal manufacturers started similar advertising campaign This suggests that the breakfast cereal market is ?

a. monopolistically competitive
b. oligopolistic
c. perfectly competitive
d. indeterminate from this information
Answer  Explanation 

ANSWER: oligopolistic

Explanation:
No explanation is available for this question!


7)   Which of the following statements best describes the outcome under monopolistic competition ?

a. In monopolistic competition, there are too many firms and each firm produce a slightly different product at a scale that is less than optimal
b. In monopolistic competition there are too few firms and each firm produce a slightly different product at scale that is greater than optimal
c. in monopolistic competition there is the correct number of firm and each firm produces a slightly different product at an optimal scale.
d. In monopolistic competition there are too many firms and each firm produce a slightly different product at the optimal scale
Answer  Explanation 

ANSWER: In monopolistic competition there are too few firms and each firm produce a slightly different product at scale that is greater than optimal

Explanation:
No explanation is available for this question!


8)   The long-run equilibrium outcomes in monopolistic competition and perfect competition are similar because in both market structures ?

a. the efficient output level will be produced in the long run
b. firms will only earn a normal profit
c. firms realize all economies of scale
d. firms will be producing at minimum average cost
Answer  Explanation 

ANSWER: firms will only earn a normal profit

Explanation:
No explanation is available for this question!


9)   A monopolistically competitive firm that is incurring a loss will produce as long as the price that the firm charges is sufficient to cover ?

a. marginal costs
b. fixed costs
c. variable costs
d. advertising costs
Answer  Explanation 

ANSWER: variable costs

Explanation:
No explanation is available for this question!


10)   Monopolistic competition differs from perfect competition primarily because ?

a. in monopolistic competition entry into the industry is blocked
b. in monopolistic competition there are relatively few barriers to entry.
c. in monopolistic competition, firms can differentiate their products
d. in perfect competition firms can differentiate their products
Answer  Explanation 

ANSWER: in monopolistic competition, firms can differentiate their products

Explanation:
No explanation is available for this question!