Economics Test Bank Chapter 14

Chapter 14 Firms in Competitive Markets

Multiple Choice

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. |

ANS: C PTS: 1 DIF: 1 REF: 14-0
NAT: Analytic LOC: Perfect competition TOP: Market power
MSC: Definitional

2. A book store that has market power can
|a. |influence the market price for the books it sells. |
|b. |minimize costs more efficiently than its competitors. |
|c. |reduce its advertising budget more so than its competitors. |
|d. |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. |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. |

ANS: B