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Market Structure and Competition

Description: This quiz evaluates your understanding of Market Structure and Competition.
Number of Questions: 15
Created by:
Tags: economics industrial economics market structure competition
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What is the primary determinant of market structure?

  1. Number of buyers and sellers

  2. Product differentiation

  3. Barriers to entry

  4. Government regulations

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Correct Option: A
Explanation:

The number of buyers and sellers in a market determines the degree of competition and the market structure.

In a perfectly competitive market, what is the relationship between price and output?

  1. Price is determined by supply and demand

  2. Price is set by the government

  3. Price is determined by the dominant firm

  4. Price is determined by collusion among firms

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Correct Option: A
Explanation:

In a perfectly competitive market, price is determined by the interaction of supply and demand, not by any individual firm.

Which market structure is characterized by a single seller?

  1. Monopoly

  2. Oligopoly

  3. Monopolistic competition

  4. Perfect competition

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Correct Option: A
Explanation:

A monopoly is a market structure in which there is only one seller of a particular good or service.

In an oligopoly, what is the relationship between firms?

  1. Firms are interdependent

  2. Firms are independent

  3. Firms are colluding

  4. Firms are competing perfectly

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Correct Option: A
Explanation:

In an oligopoly, firms are interdependent because their decisions affect each other's profits.

What is the main characteristic of monopolistic competition?

  1. Many buyers and sellers

  2. Product differentiation

  3. Barriers to entry

  4. Price-taking firms

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Correct Option: B
Explanation:

Monopolistic competition is characterized by product differentiation, which means that firms sell slightly different versions of the same product.

Which of the following is NOT a barrier to entry?

  1. Economies of scale

  2. Patents

  3. Advertising

  4. Government regulations

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Correct Option: C
Explanation:

Advertising is not a barrier to entry because it is a cost that any firm can incur.

What is the main goal of antitrust laws?

  1. To promote competition

  2. To protect consumers

  3. To regulate prices

  4. To increase government revenue

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Correct Option: A
Explanation:

The main goal of antitrust laws is to promote competition in order to protect consumers and ensure efficient markets.

What is the Herfindahl-Hirschman Index (HHI) used for?

  1. Measuring market concentration

  2. Measuring market power

  3. Measuring market efficiency

  4. Measuring market size

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Correct Option: A
Explanation:

The HHI is used to measure market concentration, which is the degree to which a market is controlled by a small number of firms.

Which type of market structure is most likely to lead to price discrimination?

  1. Monopoly

  2. Oligopoly

  3. Monopolistic competition

  4. Perfect competition

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Correct Option: A
Explanation:

Price discrimination is most likely to occur in a monopoly because the monopolist has market power and can charge different prices to different consumers.

What is the main cause of market failure?

  1. Externalities

  2. Public goods

  3. Information asymmetry

  4. All of the above

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Correct Option: D
Explanation:

Market failure can be caused by externalities, public goods, information asymmetry, or a combination of these factors.

What is the role of government in regulating markets?

  1. To promote competition

  2. To protect consumers

  3. To correct market failures

  4. All of the above

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Correct Option: D
Explanation:

The government plays a role in regulating markets to promote competition, protect consumers, and correct market failures.

Which of the following is an example of a natural monopoly?

  1. Electricity distribution

  2. Internet service

  3. Retail trade

  4. Automobile manufacturing

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Correct Option: A
Explanation:

Electricity distribution is an example of a natural monopoly because it is characterized by high fixed costs and low marginal costs.

What is the main difference between a cartel and a trust?

  1. Cartels are illegal, while trusts are legal

  2. Cartels are formed by firms in the same industry, while trusts are formed by firms in different industries

  3. Cartels are formed to fix prices, while trusts are formed to reduce costs

  4. Cartels are formed to increase market share, while trusts are formed to increase profits

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Correct Option: C
Explanation:

Cartels are formed by firms in the same industry to fix prices, while trusts are formed by firms in different industries to reduce costs.

What is the main goal of a predatory pricing strategy?

  1. To drive competitors out of the market

  2. To increase market share

  3. To increase profits

  4. To reduce costs

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Correct Option: A
Explanation:

The main goal of a predatory pricing strategy is to drive competitors out of the market by selling below cost in order to gain market share.

What is the main difference between a horizontal merger and a vertical merger?

  1. Horizontal mergers are between firms in the same industry, while vertical mergers are between firms in different industries

  2. Horizontal mergers are between firms that produce the same product, while vertical mergers are between firms that produce different products

  3. Horizontal mergers are between firms that are competitors, while vertical mergers are between firms that are not competitors

  4. Horizontal mergers are between firms that are located in the same geographic area, while vertical mergers are between firms that are located in different geographic areas

Show answer
Correct Option: A
Explanation:

Horizontal mergers are between firms in the same industry, while vertical mergers are between firms in different industries.

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