1. All of these are characteristics of a competitive industry, except: a. Many substitutes b. No barriers to entry c. Homogenous product d. Little or no information on rivals’ prod ...

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1. All of these are characteristics of a competitive industry, except:

a.
Many substitutes

b.
No barriers to entry

c.
Homogenous product

d.
Little or no information on rivals’ products

ANSWER:
d

TOPICS:
Section 1: Competitive Industries

2. Which of the following markets are closest to perfectly competitive

a.
The market for smart phones

b.
The market for generic pharmaceuticals

c.
The market for sport shoes

d.
The market for fast food

ANSWER:
b
TOPICS:
Section 1: Competitive Industries

3. A firm in a ______________ faces a __________ demand curve.

a.
perfectly competitive market; perfectly inelastic

b.
perfectly competitive market; perfectly elastic

c.
monopoly market; perfectly elastic

d.
monopoly market; horizontal

ANSWER:
b
TOPICS:
Section 1: Competitive Industries

4. In a perfectly competitive market industry, firm’s prices are equal to

a.
Average revenue

b.
Marginal revenue

c.
Both a and b

d.
None of the above

ANSWER:
c
TOPICS:
Section 1: Competitive Industries

5. In the long-run, a perfectly competitive firm will achieve

a.
An average rate of return

b.
Above average profits

c.
Losses

d.
Economic Profits

ANSWER:
a
TOPICS:
Section 1: Competitive Industries

6. A perfectly competitive firm has

a.
A perfectly elastic demand for its products

b.
A perfectly inelastic demand for its products

c.
A downward sloping demand for its products

d.
None of the above

ANSWER:
a
TOPICS:

Section 1: Competitive Industries

7. If a firm in a perfectly competitive industry is experiencing higher than normal returns, in the long-
run

a.
Some firms will leave the industry and price will rise

b.
Some firms will enter the industry and price will rise

c.
Some firms will leave the industry and price will fall

d.
Some firms will enter the industry and price will fall

ANSWER:
d
TOPICS:
Section 1: Competitive Industries

8. A sudden increase in the market demand in a competitive industry leads to

a.
A market equilibrium profits higher than the original equilibrium in the short-run

b.
A market equilibrium profits equal to the original equilibrium in the long-run

c.
Both a and b

d.
None of the above

ANSWER:
c
TOPICS:
Section 1: Competitive Industries

9. Once the patent for a drug in the pharmaceutical industry expires, the market for the generic
equivalents

a.
Is usually considered competitive

b.
Is a monopolistic market

c.
Has no effect on the profits earned by the original producer

d.
Would not exist

ANSWER:
a
TOPICS:
Section 1: Competitive Industries

10. In a competitive industry buffeted by demand and supply shocks, prices increase and decrease,
but economic profits tend to revert to zero. Hence, profits are exhibiting

a.
Above-average return

b.
Positive earnings

c.
Mean reversion

d.
None of the