Monopoly vs. Perfect Competition Quiz
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Questions and Answers

Which of the following best describes a monopoly?

  • A market with a single seller and no close substitutes (correct)
  • A market with free entry and exit of firms
  • A market where all firms sell identical products
  • A market with many sellers and many buyers

In perfect competition, firms produce at the point where:

  • Price is higher than marginal cost
  • Marginal cost equals average cost
  • Price equals total cost
  • Marginal cost equals marginal revenue (correct)

A key characteristic of a perfectly competitive market is:

  • High barriers to entry
  • Price-taking behavior (correct)
  • Control over market prices
  • Differentiated products

A monopolist faces:

<p>A downward-sloping demand curve (B)</p> Signup and view all the answers

In the long run, firms in perfect competition:

<p>Earn zero economic profits (B)</p> Signup and view all the answers

Which of the following is NOT a barrier to entry in a monopoly?

<p>Free entry and exit (A)</p> Signup and view all the answers

In perfect competition, the price of a product is determined by:

<p>Market demand and supply (C)</p> Signup and view all the answers

Perfect competition leads to an efficient allocation of resources because:

<p>Firms produce at the lowest possible cost (B)</p> Signup and view all the answers

Flashcards

Monopoly

A market structure where a single seller dominates and there are no close substitutes for the product.

Perfect Competition

A market structure characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information.

Price-taking Behavior

Firms in perfect competition cannot influence the market price because they are too small compared to the market.

Barriers to Entry

Factors that prevent new firms from entering a market, such as high start-up costs or government regulations.

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Economic Profit

Profit that is calculated above the opportunity cost of all factors of production.

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Deadweight Loss

A reduction in social welfare that occurs when markets are not efficient.

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Marginal Revenue

The change in total revenue from selling one more unit.

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Market Demand and Supply

The forces that determine the price of a good in a perfectly competitive market.

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Study Notes

Monopoly vs. Perfect Competition

  • Monopoly: A market structure with a single seller and no close substitutes. Buyers have no choice.
  • Perfect Competition: A market structure with many sellers, identical products, free entry/exit, and price-taking behavior.
  • Key Characteristics:
    • Monopoly: Single seller, barriers to entry, downward-sloping demand curve, significant market power.
    • Perfect Competition: Many sellers, identical products, free entry/exit, price determined by market forces (demand and supply).

Q&A: Monopoly and Perfect Competition

  • Question 1: Which best describes a monopoly?

    • Correct Answer: b) A market with a single seller and no close substitutes.

  • Question 2: In perfect competition, firms produce where:

    • Correct Answer: b) Marginal cost equals marginal revenue.

  • Question 3: A key characteristic of perfect competition is:

    • Correct Answer: c) Price-taking behavior.

  • Question 4: A monopolist faces:

    • Correct Answer: b) A downward-sloping demand curve.

  • Question 5: In the long run, perfectly competitive firms:

    • Correct Answer: b) Earn zero economic profits.

  • Question 6: Which is NOT a barrier to entry in a monopoly?

    • Correct Answer: c) Free entry and exit.

  • Question 7: In perfect competition, the price is determined by:

    • Correct Answer: c) Market demand and supply.

  • Question 8: A monopolist maximizes profit by producing where:

    • Correct Answer: b) Marginal revenue equals marginal cost.

  • Question 9: Perfect competition leads to efficient resource allocation because:

    • Correct Answer: b) Firms produce at the lowest possible cost.

  • Question 10: Which is true about monopolies?

    • Correct Answer: c) Monopolies create deadweight loss in the market.

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Description

Test your knowledge on the key characteristics and concepts of monopoly and perfect competition in market structures. This quiz covers definitions, essential features, and the differences between these two economic models.

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