Question

1. Which of the following is true for a monopolist?

a. Its marginal revenue curve is equal to its demand curve.

b. It faces many competitors.

c. It faces a perfectly elastic demand curve.

d. It must lower its price on all of its units in order to sell any additional units.

2. Which of the following is characteristic of a perfectly competitive market?

a. Significant barriers to entry.

b. Price below marginal revenue

c. A large number of firms.

d. Differentiated products.

3. Which of the following is an example of product differentiation?

a. Mills produce softwood and hardwood, but the two are used for different purposes.

b. Two shampoos differ only in their labels, but consumers pay $0.20 more for the label they recognize.

c. Consumers substitute SUVs for cars because SUVs accommodate more passengers.

d. Sugar can be made from sugar beets or sugar cane, and consumers cannot tell the difference.

4.Which of the following characterizes monopolistic competition?

a. Many firms produce a particular type of product, but each maintains some independent control over its own price.

b. A few firms produce all of the market supply of a good.

c. A few firms produce a particular type of product.

d. Many interdependent firms sell a homogeneous product.

Answer 1

1. Ans: It must lower its price on all of its units in order to sell any additional units.

Explanation:

A monopolist faces a downward sloping demand curve. So, to sell more it should lower price of its product.

Thus, option [d] is the correct answer.

2. Ans: A large number of firms.

Explanation:

Perfect competition is a market structure where there are large number firms selling identical products.

Thus, option [c] is the correct answer.

3. Ans: Two shampoos differ only in their labels, but consumers pay $0.20 more for the label they recognize.

Explanation:

Product differentiation means when the products are almost the same but packaging, designing, branding, labeling makes the product different from other for which price of the product slightly differ.

Thus, option [b] is the correct answer.

4. Ans: Many firms produce a particular type of product, but each maintains some independent control over its own price.

Explanation:

Monopolistic competitive market structure is a market where there are large number of sellers selling differentiated products and have independent control over its own price.

Thus, option [a] is the correct answer.