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 restaurant that has market power can
a.
minimize costs more efficiently than its competitors.
b.
influence the market price for the meals it sells.
c.
reduce its marketing budget more than its competitors.
d.
ignore profit-maximizing strategies when setting the price for its meals.
3. If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because
your local gas station
a.
has little or no market power.
b.
is small relative to the size of the gasoline market.
c.
is a competitive firm.
d.
All of the above are correct.
4. 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.
5. 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.
6. Suppose a firm in each of the two markets listed below were to increase its price by 15 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.
cotton and soybeans
b.
gasoline and corn
c.
#2 lead pencils and college textbooks
d.
electricity and cable television
7. Suppose a firm in each of the two markets listed below were to increase its price by 25 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.
restaurants and MP3 players
b.
electricity and natural gas
c.
corn and satellite radio
d.
rice and soybeans