18 - 19 Market Structures

Which of the following is not a characteristic of perfect competition?

• 1. Perfect information

• 1. Homogeneous goods

• 1. Freedom of entry and exit

• 1. A small number of firms

What is the role of supernormal profit in a perfectly competitive market?

• 1. It allows firms to grow and perhaps merge with other firms

• 1. It signals to firms to enter the market

• 1. It provides funds for advertising and branding of the product

• 1. It provides funds for investment in research and development

A firm which is in a perfectly competitive market finds that MR is £2.00, and MC is £2.50. In order to maximise profits, which of the following is MOST likely to happen?

• 1. Price will be unchanged, and output will fall

• 1. Price will be unchanged, and output will rise

• 1. Prices will fall and output will rise

• 1. Price and output will both be unchanged

What is the profit-maximising level of output for the firm represented by the diagram below?

• 1. 15 units

• 1. 50 units

• 1. 60 units

• 1. 80 units

The diagram below shows the costs and revenues for a business. 

What does the shaded area in the diagram represent?

• 1. Economic loss

• 1. Supernormal profit

• 1. Revenue earned by suppliers

• 1. Government tax revenue

The diagram below shows the costs and revenues for a business. Given the situation in the market, what will happen in this market in the long run?

• 1. Firms will leave the industry until supply of goods falls and normal profits are made

• 1. Firms will enter the industry and the ATC curve will shift downwards due to economies of scale

• 1. Firms will leave the industry and the industry will collapse

• 1. Most firms will shut down

Which ONE of the following BEST describes why, in a perfectly competitive firm, the price = marginal revenue = average revenue?

• 1. Perfect knowledge means that firms must charge the same price

• 1. There are many firms in the market and consumers can therefore bargain for a lower price

• 1. Goods are identical, and consumer knowledge of the market is perfect

• 1. Firms can take advantage of economies of scale and so produce at the minimum point on the average total cost (ATC) curve

In the long run, what is a feature of monopolistic competition, but not of perfect competition?

• 1. a small number of buyers

• 1. product differentiation

• 1. the existence of abnormal profits

• 1. the existence of barriers to entry

Why might the long-run equilibrium of a profit-maximising firm in a monopolistically competitive market differ from its short-run equilibrium?

• 1. Advertising expenditure is possible.

• 1. There are low barriers to entry.

• 1. Firms experience diminishing returns.

• 1. Innovation reduces the monopoly power of firms.

Which combination indicates monopolistic competition?

• A

• B

• C

• D