All Free Economics MCQs with Answers

• A. Increase competition in an industry by preventing mergers and breaking up large firms.
• B. regulate the prices charged by a monopoly
• C. increase merger activity to help generate synergies that reduce costs and raise efficiency.
• D. create public ownership of natural monopolies
• E. all of these answers

Explanation: Antitrust laws aim to protect competition by restricting anticompetitive mergers, conduct, and excessive market power, and may break up…

• A. does not exist
• B. is the marginal cost curve above average variable cost?
• C. is the marginal cost curve above average total cost
• D. is the upward-sloping portion of the average total cost curve
• E. The upward-sloping portion of the average variable cost

Explanation: A monopolist has no unique supply curve because its output depends on both marginal revenue and marginal cost, and marginal revenue…

• A. underproduction of the good
• B. the monopoly's profits
• C. the monopoly's losses
• D. overproduction of the good

Explanation: A monopolist restricts output below the efficient competitive level, creating deadweight loss because some mutually beneficial units are…

• A. Thomson has a legally protected exclusive right to produce this textbook
• B. Thomson owns a key resource in the production of textbooks.
• C. Thomson is a natural monopoly,
• D. Thomson is a very large company

Explanation: A textbook publisher can hold a legally protected copyright, giving it an exclusive right to publish that particular work for a specified…

• A. In competitive markets, price equals marginal cost, in monopolized markets price exceeds marginal cost.
• B. In competitive markets price equals marginal cost, in monopolized markets price equals marginal cost
• C. In competitive markets price exceeds marginal cost, in monopolized markets price exceeds marginal cost
• D. In competitive markets price exceeds marginal cost in monopolized markets price equals marginal cost

Explanation: A competitive firm takes price as given and produces where price equals marginal cost.

• A. A single firm is very large
• B. The government gives a single firm the exclusive right to produce some good
• C. The costs of production make a single producer more efficient than a large number of productions
• D. A key resource is owned by a single firm

Explanation: A single firm's large size is usually a result of monopoly, not a barrier that prevents entry.

• A. The price is greater than the marginal cost
• B. The price is greater than the marginal benefit
• C. The price is greater than the average revenue
• D. The price is greater than the marginal revenue

Explanation: Monopoly creates deadweight loss because it restricts output until price exceeds marginal cost.

• A. There are many buyers and sellers
• B. There is one main buyer
• C. There is one main seller
• D. The actions of one firm do not affect the market price and quantity

Explanation: A monopoly has one dominant seller supplying the market, usually protected by barriers to entry.

• A. Patents
• B. Internal economies of scale
• C. Mobility of resources
• D. High investment costs

Explanation: Mobility of resources helps firms enter or adjust production, so it is not an entry barrier.

• A. The price is greater than the marginal cost
• B. The price is greater than the average cost
• C. Costs are higher than they could be due to a lack of competitive pressure
• D. There are external cost

Explanation: X-inefficiency means a firm fails to minimise its production costs, often because weak competitive pressure permits waste or managerial…

• A. Advertising manipulates people's tastes to create a desire that otherwise would not exist
• B. Advertising increase competition Which causes unnecessary bankruptcies and layoffs.
• C. Advertising increases brand loyalty causes demand to be more inelastic and thus, increase mark-up over marginal cost.
• D. All of these answers are criticisms of advertising and brand names

Explanation: The standard criticisms are that advertising manipulates preferences and that brand loyalty makes demand less elastic, allowing higher…

• A. the producer of a highly differentiated consumer product
• B. the manufacturer of an undifferentiated consumer commodity
• C. a perfect competitor
• D. The manufacturer of an industrial product
• E. The producer of a low-quality product that costs the same to produce as a similar high-quality product

Explanation: Highly differentiated consumer products benefit strongly from persuasion and brand recognition, so producers have an incentive to…

• A. there are many sellers in a monopolistically competitive market and there is free entry and exit in the market just like a competitive market
• B. Monopolistically competitive firms face a downward-sloping demand curve just like competitive firms.
• C. Monopolistically competitive firms charge prices equal to the minimum of their average total cost just like competitive firms.
• D. The products are differentiated in a monopolistically competitive market just like in a competitive market.

Explanation: The competition refers to the presence of many firms and relatively free entry and exit, as in competitive markets.

• A. Since price is above marginal cost surplus is redistributed from buyers to sellers
• B. monopolistically competitive firms earn economic profits in the long run
• C. monopolistically competitive firms produce beyond their efficient scale
• D. excess of the cost of production and this causes a deadweight loss.

Explanation: With price above marginal cost, some potential buyers value additional units more than the cost of producing them, but those units are not…

• A. a manual fracture of breakfast cereal
• B. a wholesaler of crude oil
• C. a restaurant
• D. a manufacturer of home heating and air conditioning

Explanation: A wholesaler of crude oil sells a largely standardized product to business buyers, so advertising creates little additional demand.

• A. breakfast
• B. cotton
• C. video games
• D. beer

Explanation: Cotton is a relatively homogeneous commodity with little scope for product differentiation, so it is generally associated with competitive…

• A. Advertising increases competition
• B. Advertising provides information to customers about prices, new products and location of retail outlets.
• C. Advertising provides a creative outlet for artists and writers
• D. Advertising provides new firms with the means to attract customers from existing firms.

Explanation: Economists defend advertising for its market effects, such as informing consumers, increasing competition, and helping new firms attract…

• A. all of these answers
• B. are useful even in socialist economics such as the former Soviet Union
• C. provide information about the quality of the product
• D. give firms incentive to maintain high quality

Explanation: Brand names can signal product quality and give firms a reputation to protect, encouraging consistent quality.

• A. monopolistically competitive firms charge prices equal to their marginal costs just like monopolists
• B. a monopolistically competitive firms faces a downward-sloping demand curve for its differentiated product and so does a monopolist
• C. monopolistically competitive markets have free entry and exit just like a monopolistic market
• D. monopolistically competitive firms produce beyond their efficient scale and so do monopolists

Explanation: The monopoly element is that each firm has some market power over its differentiated product and therefore faces a downward-sloping demand…

• A. there are too many firms in the market and market efficiency could be increased if firms exited the market
• B. the number of firms in the market is optimal and the market is efficient
• C. There are too few firms in the market and market efficiency could be be increased with additional entry
• D. The only way to improve efficiency in this market is for the government to regulate it like a natural monopoly.

Explanation: The business-stealing externality makes entry impose a cost on existing firms, while product variety benefits consumers.