When markets are perfectly competitive, consumers:
Answer(s): A
Choice "a" is correct. Since price is barely sufficient to give a firm a normal profit and stay in business, the consumer obtains the product at as low a price as is economically feasible. In addition, every firm is forced to produce at the most efficient output rate.Choice "b" is incorrect. Brand differentiation is present in monopolistic competition, not perfect competition. Choice "c" is incorrect. This is a far-out distractor.Choice "d" is incorrect. Also far out. Individual consumers are also price takers at the market equilibrium price.
Which one of the following is not a key assumption of perfect competition?
Answer(s): C
Choice "c" is correct. A key assumption of perfect competition is that the firm is a "price taker," that is, it cannot fix the price. Accordingly, it is not true that each firm can price its product above the industry price.Key assumptions of perfect competition include:A). Customers are indifferent about which firm they buy from.B). The level of a firm's output is small relative to the industry's total output.D). There is freedom of entry into and exit out of the industry.
In order to sell at the rate of output in markets controlled by monopolists, price is set where:
Answer(s): B
Choice "b" is correct. In order to sell at the rate of output in markets controlled by monopolists, the price is set where marginal revenue equals marginal cost. No matter which model is representative of the industry in which the firm operates, the firm will maximize profits by producing at MR = MC. The monopolist's price will be higher than MR.Choice "a" is incorrect. Price exceeds both MR and MC. Choices "c" and "d" are incorrect, which are far-out distractors.
A natural monopoly exists because:
Choice "b" is correct. A natural monopoly exists when economic and technical conditions permit only one efficient supplier.Choice "a" is incorrect. Owning natural resources, even if they are unique, would not create a monopoly. Substitutes for the resource may be available.Choice "c" is incorrect. Government control may create a monopoly, but not a natural monopoly. This is a regulated monopoly.Choice "d" is incorrect. Barriers to entry help create a monopoly, but the product must be unique.
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