Business Organization & Market Structures

Which type of monopoly is allowed to exist because it gives an incentive to create or improve something?

• Natural Monopoly

• Geographic Monopoly

• Government Monopoly

• Technological Monopoly

Answer explanation

When businesses or individuals spend their time, effort, and money in developing a product, they want to be able to capitalize off of that creation. Technological monopolies allow for creatives to be able to profit off of their hardwork and protect their intellectual property. If this wasn't the case, then there would be no incentive to invest in research and development of new ideas or creations.

Which type of monopoly is allowed to exist because there is only one company legally allowed to provide this service?

• Natural Monopoly

• Geographic Monopoly

• Government Monopoly

• Technological Monopoly

Answer explanation

Government monopolies are allowed to exist because they provide services that only the government can provide like driver's license, taxes, passports, vehicle registration, etc.

Which type of monopoly is allowed to exist because they are the only company in an area that is willing and capable of producing?

• Natural Monopoly

• Geographic Monopoly

• Government Monopoly

• Technological Monopoly

Answer explanation

Geographic monopolies are allowed to exist because some locations can't support more than one option. The government can't force a business to open up in an area that won't get much business.

Which type of monopoly is allowed to exist because they keep the average cost per customer low?

• Natural Monopoly

• Geographic Monopoly

• Government Monopoly

• Technological Monopoly

Answer explanation

Natural monopolies are allowed to exist because they keep the average cost per customer low. A good way to remember this is "natural gas is a natural monopoly". Natural gas and other utility companies are allowed to act as a monopoly because if another competing company wanted to open up in town they would have to run new pipes and infrastructure to each builing in the area and that would increase costs dramatically. By maintaining a monopoly, with close oversight, it can keep the costs per customer low.

Which market structure has businesses that sell identical goods?

• Perfect Competition

• Monopolistic Competition

• Oligopoly

• Monopoly

Answer explanation

A good example of perfect competition would be agriculture. Farmers sell tomatoes that are essentially the exact same product. There isn't much difference between them, a tomato is a tomato.

Which market structure has some control over pricing and is relatively easy to enter into?

• Perfect Competition

• Monopolistic Competition

• Oligopoly

• Monopoly

Answer explanation

Monopolistic competition has some control over pricing but they can't get too crazy. Think fast food restaurants. It's not too difficult to open up a new burger restaurant. You would have some say over pricing but you couldn't be successful if you charged $100 per burger because customers could go to another burger place and get something similar for less.

Which market structure is very difficult, but NOT the most difficult to enter into?

• Perfect Competition

• Monopolistic Competition

• Oligopoly

• Monopoly

Answer explanation

Oligopolies are pretty difficult to enter into, namely because of the infrastructure that is needed to start-up and because your competitors will be very strong. Think of cell phone providers. You would have to compete with Verizon, AT&T and T-Mobile plus you would have to build your own antenna network or work out deals with existing carriers.

Which market structure is considered a "price maker" because they have total control over price?

• Perfect Competition

• Monopolistic Competition

• Oligopoly

• Monopoly

Answer explanation

Monopolies are price-makers because there is no competition. They can set the price and customers will either pay it or do without since they can't find an alternative.

Which market structure is considered a "price taker" because they have to take the price set by supply and demand?

• Perfect Competition

• Monopolistic Competition

• Oligopoly

• Monopoly

Which market structure is made up of a few large firms?

• Perfect Competition

• Monopolistic Competition

• Oligopoly

• Monopoly