Identify the primary characteristics of perfect competition


1. Which of the following is most likely to be an implicit cost for Company X?

  • Forgone rent from the building owned and used by Company X
  • Rental payments on IBM equipment
  • Payments for raw materials purchased from Company Y
  • Transportation costs paid to a nearby trucking firm

2. The short run is characterized by

  • plenty of time for firms to either enter or leave the industry.
  • increasing, but not diminishing returns.
  • fixed plant capacity.
  • zero fixed costs.

3. An industry comprised of 40 firms, none of which has more than 3% of the total market for a differentiated product is an example of

  • monopolistic competition.
  • oligopoly.
  • pure monopoly.
  • pure competition.

4. Which of the following statements applies to a purely competitive producer?

  • It will not advertise its product.
  • In long-run equilibrium it will earn an economic profit.
  • Its product will have a brand name.
  • Its product is slightly different from those of its competitors.

5. Which of the following best approximates a pure monopoly?

  • The foreign exchange market
  • The Kansas City wheat market
  • The only bank in a small town
  • The soft drink market

6. Barriers to entering an industry

  • encourage allocative efficiency.
  • encourage productive efficiency.
  • are the basis for monopoly.
  • apply only to purely monopolistic industries.

7. The restaurant, legal assistance, and clothing industries are each illustrations of

  • countervailing power.
  • homogeneous oligopoly.
  • monopolistic competition.
  • pure monopoly.

8. Product variety is likely to be greater in

  • monopolistic competition than in pure competition.
  • pure competition than in monopolistic competition.
  • homogenous oligopoly than in monopolistic competition.
  • homogenous oligopoly than in differentiated oligopoly.

9. Which of the following is the best example of oligopoly?

  • Women's dress manufacturing
  • Automobile manufacturing
  • Restaurants
  • Cotton farming

10. An industry having a four-firm concentration ratio of 85%

  • approximates pure competition.
  • is monopolistically competitive.
  • is a pure monopoly.
  • is an oligopoly.

11. What is the LAW OF DIMINISHING RETURNS, and why is this law considered a short-run phenomenon?

12. Identify the primary characteristics of perfect competition and monopolistic competition. Give examples of each.

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