Market Structure and Size of Firms

What would not affect the budget line of an individual consumer?

• the individual’s preference for various goods

• the level of income tax

• the money prices of goods

• the wages earned by the individual

What is an example of backward vertical integration?

• a bakery buying a wheat farm

• a car manufacturer buying a car showroom

• a vineyard buying an apple orchard

• two rival supermarkets joining together

How is social cost calculated?

• external cost minus external benefit

• external cost minus private cost

• external cost plus private cost

• social cost minus social benefit

The table shows some of the costs and benefits, in $ millions, associated with a road building project. Both a government department and a profit-maximising private firm are considering building the road.

private

costs

450

external

costs

75

external

benefits

50

social

benefits

550

• Both would be willing to build it.

• Neither would be willing to build it.

• Only the government department would be willing to build it.

• Only the private firm would be willing to build it.

Which statement is correct?

• In a command economy firms compete and profit maximise allocating resources efficiently.

• In a command economy resources are privately owned.

• In a market economy prices are used to signal the value of individual resources.

• In a market economy resources are allocated by central planners.

What defines average variable cost?

• total cost divided by the quantity of the variable factor employed

• total variable cost divided by the quantity of the variable factor employed

• total variable cost divided by the output produced

• the addition to total variable cost by producing one more unit of output

What cannot be changed in the short run?

• the level of stock held by firms

• the level of technology available

• the market price of goods

• the output of individual firms in an industry

The market structure of an industry changed from being an oligopoly to monopolistic competition.

What is most likely to have increased?

• an individual firm’s ability to influence the market price

• an individual firm’s degree of interdependence in the market

• the concentration ratio in the market

• the number of firms in the market

A firm has total production cost of $200 000. Its average fixed cost is $120 and its average variable cost is $80.

What are the firm’s total fixed costs?

• $12 000

• $40 000

• $80 000

• $120 000

What is a characteristic of monopolistic competition?

• abnormal profits in the long run

• advertising supporting product differentiation

• all firms charge the same price

• barriers to entry are high