AP Microeconomics : Competition
Study concepts, example questions & explanations for AP Microeconomics
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Example Questions
Example Question #81 : Perfectly Competitive Output Markets
In the long run, a monopolistically competitive firm will:
earn negative economic profit
earn positive economic profit
earn zero economic profit
become an oligopoly
become a monopoly
earn zero economic profit
Monopolistic competition is a situation where firms sell products that are differentiated from one another. In this situation, firms can behave like monopolies in the short run and earn positive economic profits. However, they will revert to making zero economic profit over the long run.
Example Question #82 : Perfectly Competitive Output Markets
Patents, limiting the number of licenses available, and economies of scale are all examples of:
barriers to entry
sources of demand
None of the other answers are correct.
sources of supply
factors of production
barriers to entry
Patents, limiting the number of licenses available, and economies of scale can all hinder a firm's ability to enter the market. A patent prevents a firm from replicating a product that originated from another firm. A limited number of licenses can exclude firms who are unable to obtain licenses from entering the market. Economies of scale can prevent smaller firms from entering the market by making such an action cost-prohibitive.
Example Question #93 : Perfectly Competitive Markets
Labor, capital, human capital, and natural resources are all examples of:
factors of production
None of the other answers are correct.
sources of supply
sources of demand
barriers to entry
factors of production
All of these are examples of factors of production, which are the inputs necessary for a production process.
Example Question #83 : Perfectly Competitive Output Markets
A consumer's indifference curves for two different goods will be a straight lines when:
The prices of the two goods are equal
Both goods are perfect substitutes
None of the other answers are correct.
Both goods are perfect compliments
Utility is maximized
Both goods are perfect substitutes
When both goods are perfect substitutes, the consumer is indifferent between the amount of consumption of the two goods. Thus, his/her indifference curves will be straight lines, because the rate of substitution between the two goods will be constant.
Example Question #84 : Perfectly Competitive Output Markets
Which of the following market structures is characterized by low barriers to entry, homogeneous products, and a large number of firms?
Monopolistic Competition
Perfect Competition
Monopoly
Oligopoly
Perfect Competition
In perfectly competitive markets, there are low barriers to entry (think of a food truck--all one needs in order to operate are a truck, fuel, cooking equipment, and a business license), homoegenous products (consider a farm--nearly all cucumbers are identical to one another), and a large number of firms (this is what makes the environment so competitive).
In monopolistic competition and oligopolies, products tend to be heterogeneous, and in a monopoly, there are extremely high barriers to entry.
Example Question #91 : Perfectly Competitive Output Markets
For which of the following market structures is demand always equal to marginal revenue?
Monopolistic competition
Monopoly
Perfect competition
Oligopoly
Perfect competition
The marginal revenue curve always has the same intercept on the price axis as the demand curve and twice the slope of the demand curve.
For market structures of oligopoly, monopoly, and monopolistic competition, the firm faces a demand curve that is downward sloping (indicated market power), so the marginal revenue curve would be steeper than the demand curve.
For perfectly competitive market structures, however, the firm faces a demand curve that is horizontal, with a slope of 0 (i.e. it is perfectly elastic). For a firm in perfect competitive market structure, therefore, the marginal revenue curve, which has the same intercept and twice the slope, results in the exact same curve as the demand curve.
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