Question

21. Which of the following is true regarding perfect competition? I. The firms are price takers. II. Marginal revenue equals the price of the product. III. Established firms have no advantage over new firms. A) I and II B) II and III C) I, II and III D) I only 22. A perfectly competitive firm has a total revenue curve that is A) upward sloping with an increasing slope. B) downward sloping with a constant slope. C) upward sloping with a decreasing slope. D) upward sloping with a constant slope. 23. Which of the following firms is most likely to be a monopoly? A) a local restaurant B) the local water company C) a local drug store D) a clothing store 24. Which of the following cannot be an effective entry barrier? A) a firm earning very high economic profits B) a firm being granted a patent for its product C) a firm owning all of a vital resource needed to produce a good D) when huge economies of scale exist 25. Monopolistic competition is a market structure in which: A) A small number of firms compete. B) Each firm produces an identical product. C) Firms only compete on product price. D) Firms are free to enter or exit. 5. If the price of a candy bar is $1 and the price of a fast food meal is $5, then the A) relative price of a candy bar is 5 fast food meals per candy bar. B) money price of a candy bar is 1/5 of a fast food meal per candy bar. C) relative price of a fast food meal is 5 candy bars per fast food meal. D) money price of a fast food meal is 1/5 of a candy bar per fast food meal.

Answer 1

21. All features are correct so select C) I, II and III

This is because price taking firms cannot have any influence on price but can only change the quantity produced by them. Hence the slope is constant which is the price.

22. Correct choice is option D) upward sloping with a constant slope.

Since Q is rising, TR is also rising but is a straight line. But slope is price and it is constant so it slopes upwards with constant slope.

23. Correct option is Option B) the local water company

This is because it can control over a key resource which is water in this case.

24. Correct option is Option A) a firm earning very high economic profits

Higher profits will actually attract other firms to enter and produce.

25. Correct choice is Option D) Firms are free to enter or exit.

26. Correct option is option C) relative price of a fast food meal is 5 candy bars per fast food meal.