10. An increase in which of the following will result in a long-run surplus?
A. The number of people who supply the product
B. A legally mandated price floor
C. An increase in demand
D. Costs of raw materials
E. Future expectations of prices
- In a perfectly competitive market, how is price adjusted?
A. Each firm decides on price.
B. Firms with the help of competition decide on prices.
C. Firms ask the government to set prices.
D. The forces of supply and demand dictate a market price firms use.
E. Firms use non-price competition.
12. What type of demand is associated with a perfectly competitive firm?
A. Income inelastic
B. Income elastic
C. Inelastic demand
D. Elastic demand
E. Unitary elastic
13. What is the main similarity between a monopolistically competitive firm and a monopoly?
A. They both have one firm in the market.
B. They both have extreme price control.
C. They both have a downward-sloping demand curve.
D. They both have no competitors.
E. They both have many competitors.
14. If a perfectly competitive firm decides to increase its price to obtain a profit, which of the following is likely to
occur?
A. The firm will enjoy massive profits.
B. The firm will enjoy profits at first but no profits in the long run.
C. The firm will soon go out of business.
D. Other firms will follow the price increase.
E. Other firms will follow the price increase with non-price competition.
15. Which of the following is a characteristic of an oligopoly?
A. A kinked supply curve
B. No product differentiation
C. No competition
D. Existence of many firms
E. Strategic competition
Answers to Review Questions
- D. Perfectly competitive firms have no long-run profit. These firms cannot afford to set their prices above the
market price because their products have perfect substitutes.
Product Markets and Profit Maximization
