Chapter 1 Managers and Economics

9) Which of the following conditions ensures that excess profits cannot persist in a perfectly competitive market

over the long run?

A) Large number of firms in the industry.

B) Outputs of the firms are perfect substitutes for one another.

C) Complete information is available to all market participants.

D) Ease of entry into the market.

10) Which of the following statements is correct?

A) So long as a firm is sufficiently large, it will have some amount of market power, regardless of the type

of market in which it operates.

B) All else constant, a monopoly firm has more market power than a monopolistically competitive firm.

C) The amount of market power a firm possesses is unrelated to the type of market in which it operates.

D) The fact that the firms in an oligopoly are mutually interdependent means that individual firms do not

have any market power.

Page 2 11) The market structure that is characterized by a small number of large firms that have some market power is

called:

A) perfect competition.

B) monopolistic competition.

C) oligopoly.

D) monopoly.

12) Which of the following market structures is most similar to perfect competition?

A) Monopsony.

B) Monopolistic competition.

C) Oligopoly.

D) Monopoly.

13) The key characteristic of an oligopolistic market is:

A) production of a homogeneous product.

B) mutual interdependence among firms in the market.

C) the absence of market power by any one firm.

D) ease of entry into, and exit out of, the market.

14) Which of the following statements about monopoly is false?

A) A single firm serves the market.

B) There are no close substitutes for the monopolist's output.

C) There are usually significant barriers to entry.

D) Because there is a single firm serving the entire market, the monopolist can charge whatever price it

wants to for its output.

15) The assumed goal of the firms that operate in each of the four market structures discussed in the text is to

maximize:

A) sales.

B) revenue.

C) profits.

D) price.

Page 3

Copyright©2010 Pearson Education, Inc. 16) Which of the following statements about the circular flow model is false?

A) Consumers earn income by selling resources they own to businesses.

B) Businesses supply goods and services to the household sector.

C) Households supply resources to the business sector.

D) Business firms buy goods and services from the household sector.