Firms in Competitive Markets

1. A firm has market power if it can

• a.

  maximize profits.

• b.

  minimize costs.

• c.

  influence the market price of the good it sells.

• d.

  hire as many workers as it needs at the prevailing wage rate.

2. A book store that has market power can 

• a.

  influence the market price for the books it sells.

• b.

  minimize costs more efficiently than its competitors.

• c.

  reduce its advertising budget more so than its competitors.

• d.

  ignore profit-maximizing strategies when setting the price for its books.

3. The analysis of competitive firms sheds light on the decisions that lie behind the 

• a.

  demand curve.

• b.

  supply curve.

• c.

  way firms make pricing decisions in the not-for-profit sector of the economy.

• d.

  way financial markets set interest rates.

4. For any competitive market, the supply curve is closely related to the

• a.

  preferences of consumers who purchase products in that market.

• b.

  income tax rates of consumers in that market.

• c.

  firms’ costs of production in that market.

• d.

  interest rates on government bonds.

Suppose a firm in each of the two markets listed below were to increase its price by 20 percent.  In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?  

• a.

  corn and soybeans

• b.

  gasoline and restaurants

• c.

  water and cable television

• d.

  spiral notebooks and college textbooks

6. Suppose a firm in each of the two markets listed below were to increase its price by 30 percent.  In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?  

• a.

  oil and natural gas

• b.

  cable television and gasoline

• c.

  restaurants and MP3 players

• d.

  movie theaters and ballpoint pens

7. A firm that has little ability to influence market prices operates in a 

• a.

  competitive market.

• b.

  strategic market.

• c.

  thin market.

• d.

  power market.

8. In a competitive market, the actions of any single buyer or seller will  

• a.

  have a negligible impact on the market price.

• b.

  have little effect on market equilibrium quantity but will affect market equilibrium price.

• c.

  affect marginal revenue and average revenue but not price.

• d.

  adversely affect the profitability of more than one firm in the market.

9. In a competitive market, the actions of any single buyer or seller will  

• a.

  discourage entry by competitors.

• b.

  influence the profits of other firms in the market.

• c.

  have a negligible impact on the market price.

• d.

  None of the above is correct.

10. Because the goods offered for sale in a competitive market are largely the same,

• a.

  there will be few sellers in the market.

• b.

  there will be few buyers in the market.

• c.

  only a few buyers will have market power.

• d.

  sellers will have little reason to charge less than the going market price.