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Market Structures: Competition, Market Power, and Strategy Online Quiz Questions

Use this free practice quiz with 30 questions to review Market Structures: Competition, Market Power, and Strategy, test your knowledge, and prepare for your next test or exam.

30 questions
01
Choose one
1 point

A market contains many firms, but each firm uses branding, location, and customer service to make its product distinct from rivals’ products. Which market structure best describes this market?

  1. A

    Perfect competition

  2. B

    Monopolistic competition

  3. C

    Oligopoly

  4. D

    Monopoly

02
True or false
1 point

In long-run equilibrium, a perfectly competitive firm produces at the minimum point of its average total cost curve and earns zero economic profit.

  1. A

    True

  2. B

    False

03
Written response
1 point

A perfectly competitive firm sells its product for $18. At its profit-maximizing output of 200 units, its average total cost is $14. What is its economic profit? Enter the amount in whole dollars. No tolerance is allowed.

04
Fill in the blank
1 point

Complete both statements. A firm’s general profit-maximizing output rule is . In the short run, the firm should continue producing only if price covers its .

05
Choose all
1 point

Which three conditions can serve as barriers to entry that support monopoly power? Select all correct choices.

  1. A

    A patent granting exclusive rights to produce a product

  2. B

    A firm offering several package designs

  3. C

    One firm controlling an essential input

  4. D

    Economies of scale that make one large provider lowest cost

06
Choose one
1 point

A monopolist has the following marginal values: at quantities 1 through 5, marginal revenue is $20, $16, $12, $8, and $4, while marginal cost is $4, $8, $12, $16, and $20. The demand schedule gives a price of $16 at quantity 3. Which output and price maximize profit?

  1. A

    1 unit at $20

  2. B

    2 units at $18

  3. C

    3 units at $16

  4. D

    4 units at $14

07
True or false
1 point

When new firms enter a monopolistically competitive market, the demand facing each existing firm tends to shift left, and long-run economic profit tends toward zero. True or false?

  1. A

    True

  2. B

    False

08
Written response
1 point

A monopolist lowers its price to $18 and quantity demanded rises to 115 units. What is its new total revenue? Enter the amount in whole dollars. No tolerance is allowed.

09
Fill in the blank
1 point

In the airline pricing game, choosing a low fare gives an airline a higher payoff whether its rival chooses a high or low fare. Low fare is therefore the airline's . The outcome in which both airlines choose low fare is the .

10
Choose all
1 point

Which three characteristics are commonly associated with oligopoly? Select all correct choices.

  1. A

    Firms must consider how rivals will respond to decisions

  2. B

    Products may be identical or differentiated

  3. C

    Individual firms always accept the market price as given

  4. D

    Entry barriers are often significant

11
Choose one
1 point

According to the kinked-demand model of oligopoly, what rival behavior can help explain why prices remain rigid?

  1. A

    A price increase is matched by all rivals, but a price cut is ignored

  2. B

    A price cut is matched by rivals, but a price increase is not

  3. C

    Both price increases and cuts are always matched by rivals

  4. D

    Rivals never respond to a firm’s price changes

12
Open ended
1 point

Explain why a profit-maximizing monopoly generally creates deadweight loss. Then describe one government policy that could reduce the inefficiency and explain one possible drawback of that policy.

13
Choose one
1 point

A competitive firm faces a market price of $9. At its chosen output, average total cost is $12 and average variable cost is $7. What should the firm do in the short run?

  1. A

    Shut down because price is below average total cost

  2. B

    Produce because price exceeds average total cost

  3. C

    Produce because price covers average variable cost even though it is below average total cost

  4. D

    Shut down because the firm has no economic profit

14
Choose one
1 point

Which situation is most likely to make informal cooperation sustainable in an oligopoly’s repeated game?

  1. A

    Frequent interaction, observable actions, and credible punishment

  2. B

    Many firms, rapidly changing products, and hidden actions

  3. C

    A single interaction with no possibility of future retaliation

  4. D

    Unpredictable demand and no information about rivals

15
Choose one
1 point

A market has hundreds of small sellers offering an identical agricultural commodity. Buyers can compare prices easily, and new sellers can enter with little difficulty. Which market structure best fits this market?

  1. A

    Perfect competition

  2. B

    Monopolistic competition

  3. C

    Oligopoly

  4. D

    Monopoly

16
True or false
1 point

True or false: In the short run, a perfectly competitive firm can rationally continue producing even when it is earning an economic loss, provided that price is at least average variable cost.

  1. A

    True

  2. B

    False

17
True or false
1 point

True or false: A profit-maximizing monopolist normally chooses its price by finding the point where the demand curve intersects marginal revenue.

  1. A

    True

  2. B

    False

18
Written response
1 point

A competitive firm sells 80 units at a market price of $16. At that output, its average total cost is $10 and its average variable cost is $7. What is its economic profit? Enter the result as a whole-dollar amount without a dollar sign or comma.

19
Written response
1 point

What term describes a firm that must accept the market price because it cannot individually influence that price?

20
Choose one
1 point

New restaurants enter a monopolistically competitive neighborhood. What is the most likely effect on the demand faced by one established restaurant?

  1. A

    The existing firm's demand generally shifts left and becomes more elastic.

  2. B

    The existing firm's demand becomes perfectly inelastic.

  3. C

    The existing firm's marginal cost immediately falls to zero.

  4. D

    The existing firm becomes a price taker selling an identical product.

21
True or false
1 point

True or false: The kinked-demand model is a universal explanation that applies to every oligopoly's pricing behavior.

  1. A

    True

  2. B

    False

22
Fill in the blank
1 point

A monopoly generally produces less than the competitive quantity, leaving some mutually beneficial trades unrealized. The resulting lost gains from trade are called .

23
Choose one
1 point

A regional wireless-service market is dominated by three large firms. Each firm closely watches rivals' pricing, advertising, and investment decisions because a change by one firm is likely to trigger responses from the others. Which market structure best fits this situation?

  1. A

    Oligopoly

  2. B

    Perfect competition

  3. C

    Monopolistic competition

  4. D

    Monopoly

24
Choose one
1 point

Several large firms dominate a market, entry requires substantial capital, and each firm carefully considers how rivals will respond to changes in price. Which market structure best describes this market?

  1. A

    Monopolistic competition

  2. B

    Oligopoly

  3. C

    Perfect competition

  4. D

    Monopoly

25
Choose one
1 point

A perfectly competitive firm faces a market price of $8. At its chosen output, its average total cost is $11 and its average variable cost is $6. What should the firm do in the short run?

  1. A

    Shut down because price is below ATC

  2. B

    Produce only if price exceeds ATC

  3. C

    Continue producing because price covers AVC

  4. D

    Raise its price above the market price

26
Choose one
1 point

A monopolist faces this schedule: at 1 unit, MR is $24 and MC is $8; at 2 units, MR is $20 and MC is $14; at 3 units, MR is $16 and MC is $16; at 4 units, MR is $11 and MC is $19. The demand curve indicates a price of $17 at 3 units. What output and price maximize profit?

  1. A

    2 units at $19

  2. B

    3 units at $21

  3. C

    3 units at $17

  4. D

    4 units at $15

27
Choose one
1 point

A restaurant in monopolistic competition is earning an economic profit. New restaurants enter the market. What is the most likely long-run effect on the original restaurant?

  1. A

    Its demand shifts leftward and becomes more elastic

  2. B

    Its demand shifts rightward and becomes less elastic

  3. C

    Its marginal cost becomes zero

  4. D

    Its product becomes identical to every rival's product

28
Written response
1 point

A perfectly competitive firm sells its product for $23. At its profit-maximizing output of 120 units, its average total cost is $18 and its average variable cost is $12. What is the firm's economic profit? Enter the result as a whole-dollar amount without a dollar sign or comma.

29
Choose all
1 point

A restaurant in a market with many competitors wants to make its offering less interchangeable with rivals’ offerings. Which actions are examples of product differentiation? Select all that apply.

  1. A

    A restaurant develops a distinctive menu and improves the quality of its ingredients.

  2. B

    A restaurant chooses a convenient location near a large customer base.

  3. C

    A restaurant builds a recognizable brand and reputation through advertising.

  4. D

    A restaurant offers unusually attentive customer service.

  5. E

    A restaurant sells an entirely standardized product that is identical to every rival’s product.

30
Written response
1 point

A firm in monopolistic competition earns zero economic profit in the long run but still covers both its explicit and implicit costs. What two-word economics term describes the return it earns?