Question

1) If economic profits exist in a perfectly competitive market, then

	A.	firms will enter the market in the short run.
	B.	there will be no change in the number of firms in the market.
	C.	firms will enter the market in the long run.
	D.	firms will exit the market in the short run.
	E.	firms will exit the market in the long run.

2) A(n) __________ may offer products that are either differentiated or identical.

	A.	monopoly
	B.	perfectly competitive firm
	C.	oligopolistic firm
	D.	price taker
	E.	monopolistically competitive firm

3) In monopoly,

	A.	there is ease of entry into the market and exit from the market.
	B.	economic profits are zero in the long run.
	C.	the product has many good substitutes.
	D.	None of the above.
	E.	the number of firms is large.

Answer 1

1. Option C.

• In a perfectly competitive maket, firm's usually earn profits in short run.
• This is attract many new firm's to the market and they will enter the market in the long run.

2. Option C.

• An oligopolistic firm may offer products that are either differentiated or identical.
• Such an oligopoly is referred to as a pure oligopoly.

3. Option D.

• None of the above characteristics mentioned above are correct about a monopoly.
• Monopoly has strong barriers to entry and it does not allow the competitor's to enter into the market.
• A momopmon earns supernormal profits in long run.
• As it is the sole producer due to the absence of other competitive firms, monopoly products do not have substitues.
• A momopmon market consists of a single firm rather than having large number of firm's.