Chapter 14 Firms in Competitive Markets MULTIPLE CHOICE 1. A firm has market power if it can a. b. c. d. maximize profits. minimize costs. influence the market price of the good it sells. hire as many workers as it needs at the prevailing wage rate. ANS: C PTS: 1 DIF: 1 NAT: Analytic LOC: Perfect competition MSC: Definitional REF: 14-0 TOP: Market power 2. A book store that has market power can a. b. c. d. influence the market price for the books it sells. minimize costs more efficiently than its competitors. reduce its advertising budget more so than its competitors. ignore profit-maximizing strategies when setting the price for its books. ANS: A PTS: 1 DIF: 1 REF: 14-0 NAT: Analytic LOC: Perfect competition TOP: Market power MSC: Applicative 3. The analysis of competitive firms sheds light on the decisions that lie behind the a. b. c. d. demand curve. supply curve. way firms make pricing decisions in the not-for-profit sector of the economy. way financial markets set interest rates. ANS: B PTS: 1 DIF: 1 REF: 14-0 NAT: Analytic LOC: Perfect competition TOP: Competitive markets MSC: Interpretive 4. For any competitive market, the supply curve is closely related to the a. b. c. d. preferences of consumers who purchase products in that market. income tax rates of consumers in that market. firms’ costs of production in that market. interest rates on government bonds. ANS: C PTS: 1 DIF: 1 REF: 14-0 NAT: Analytic LOC: Perfect competition TOP: Competitive markets MSC: Interpretive 5. 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. b. c. d. corn and soybeans gasoline and restaurants water and cable television spiral notebooks and college textbooks ANS: D PTS: 1 DIF: NAT: Analytic LOC: Perfect competition MSC: Applicative 2 REF: 14-0 TOP: Competitive markets 1 2 ❖ Chapter 14/Firms in Competitive Markets 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. b. c. d. oil and natural gas cable television and gasoline restaurants and MP3 players movie theaters and ballpoint pens ANS: B PTS: 1 DIF: NAT: Analytic LOC: Perfect competition MSC: Applicative 2 REF: 14-0 TOP: Competitive markets