Understanding Market Structures Quiz

What is a characteristic of a competitive market?

• Few sellers

• Many buyers and sellers

• Unique product

• High barriers to entry

In a competitive market, what is the relationship between price (P), marginal revenue (MR), and average revenue (AR)?

• P > MR = AR

• P = MR > AR

• P = MR = AR

• P < MR = AR

What decision should a firm make if the price is below average variable cost in the short run?

• Continue production

• Increase production

• Shutdown

• Enter the market

Why can competitive firms only earn zero economic profit in the long run?

• Due to high fixed costs

• Because of government regulations

• Due to free entry and exit in the market

• Because of monopolistic competition

What is a characteristic of a monopoly?

• Many substitutes

• Price taker

• Single seller

• Free entry and exit

In a monopoly, what is the relationship between price (P), marginal cost (MC), and marginal revenue (MR)?

• P = MC = MR

• P > MC = MR

• P < MC = MR

• P = MC > MR

What is deadweight loss in the context of a monopoly?

• The loss of consumer surplus

• The loss of producer surplus

• The loss of total welfare due to inefficient market outcomes

• The loss of government revenue

What is price discrimination?

• Charging the same price to all consumers

• Charging different prices to different consumers based on their willingness to pay

• Charging a higher price for a lower quality product

• Charging a lower price for a higher quality product

What is a characteristic of monopolistic competition?

• Homogeneous products

• Few sellers

• Differentiated products

• High barriers to entry

In monopolistic competition, what happens to economic profits in the long run?

• They increase

• They decrease

• They become zero

• They become negative