Market Structure Objective Type Questions and Answers

21 Which of the following is a barrier to entry that typically results in monopoly?

A Production of the industry's product requires a large initial capital investment.

B The firm controls the entire supply of a raw material.

C The firm holds an exclusive government franchise.

D Production of the industry's product is subject to economies of scale over a broad range of output.

Answer: Production of the industry's product requires a large initial capital investment.

22 The market demand curve for a perfectly competitive industry is QD = 12 - 2P. The market supply curve is QS = 3 + P. The market will be in equilibrium if

A P = 4 and Q = 4.

B P = 3 and Q = 6.

C P = 5 and Q = 2.

D P = 6 and Q = 9.

View Answer

Answer: P = 3 and Q = 6.

23 A perfectly competitive firm should reduce output or shut down in the short run if market price is equal to marginal cost and price is

A less than average variable cost.

B greater than average variable cost.

C greater than average total cost.

D less than average total cost.

View Answer

Answer: less than average variable cost.

24 Which of the following markets comes close to satisfying the assumptions of a perfectly competitive market structure?

A The market for petroleum and natural gas.

B The market for agricultural commodities such as wheat or corn.

C The stock market.

D All of the above come close to satisfying the assumptions of perfect competition.

View Answer

Answer: All of the above come close to satisfying the assumptions of perfect competition.

25 If one perfectly competitive firm increases its level of output, market supply

A will increase and market price will fall.

B will increase and market price will rise.

C and market price will both remain constant.

D will decrease and market price will rise.

View Answer

Answer: and market price will both remain constant.

26 If a firm sells its output on a market that is characterized by few sellers and many buyers and limited long-run resource mobility, then the firm is

A a monopolist.

B an oligopolist.

C a perfect competitor.

D a monopolistic competitor.

View Answer

Answer: an oligopolist.

27 If a firm sells its output on a market that is characterized by many sellers and buyers, a differentiated product, and unlimited long-run resource mobility, then the firm is

A a monopolistic competitor.

B a perfect competitor.

C a monopolist.

D an oligopolist.

View Answer

Answer: a monopolistic competitor.

28 If a firm sells its output on a market that is characterized by a single seller and many buyers of a homogeneous product for which there are no close substitutes and barriers to long-run resource mobility, then the firm is

A a monopolist.

B an oligopolist.

C a perfect competitor.

D a monopolistic competitor.

View Answer