Market Structures MCQs 2026

Perfect competition is characterized by

1. A large number of buyers and sellers with free entry and exit ✓
2. B a single seller with blocked entry ✓
3. C few interdependent firms only ✓
4. D government-fixed prices only ✓

Under perfect competition, a firm is a

1. A price maker ✓
2. B cartel leader ✓
3. C price taker ✓
4. D monopsonist always ✓

In the short run, a perfectly competitive firm maximizes profit where

1. A AR = AC only always ✓
2. B TR is minimum ✓
3. C price equals AFC only ✓
4. D MR = MC and MC is rising ✓

For a perfectly competitive firm, the demand curve is

1. A perfectly elastic at the market price ✓
2. B perfectly inelastic ✓
3. C downward sloping like monopoly ✓
4. D upward sloping always ✓

In long-run equilibrium under perfect competition, firms earn

1. A normal profit only ✓
2. B supernormal profit forever ✓
3. C persistent losses always ✓
4. D monopoly rent always ✓

Shut-down point for a competitive firm in the short run is where

1. A price equals AFC ✓
2. B price equals minimum AVC ✓
3. C price equals ATC always ✓
4. D MR equals AFC ✓

The short-run supply curve of a competitive firm is

1. A the entire ATC curve ✓
2. B the MC curve above minimum AVC ✓
3. C the AFC curve only ✓
4. D the AR curve below AVC ✓

Homogeneous product is a feature of

1. A monopolistic competition only ✓
2. B oligopoly with branding only ✓
3. C monopoly with unique good only ✓
4. D perfect competition ✓

A monopoly exists when there is

1. A many sellers of identical goods ✓
2. B two firms only always ✓
3. C a single seller of a product with no close substitutes ✓
4. D perfect free entry ✓

A monopolist maximizes profit where

1. A AR = AC always ✓
2. B price equals MC always ✓
3. C MR = MC ✓
4. D MR equals AR always ✓

Under monopoly, the demand curve facing the firm is

1. A perfectly elastic ✓
2. B horizontal at MC ✓
3. C the market demand curve (downward sloping) ✓
4. D identical to MR ✓

For a monopolist, marginal revenue is

1. A less than price (AR) ✓
2. B equal to price always ✓
3. C greater than price always ✓
4. D equal to ATC always ✓

Deadweight loss under monopoly arises because

1. A price equals MC ✓
2. B entry is free ✓
3. C MR equals AR ✓
4. D output is restricted below the competitive level ✓

Natural monopoly typically occurs when

1. A many small firms have rising AC ✓
2. B MC always exceeds AC ✓
3. C demand is perfectly elastic ✓
4. D long-run average cost falls continuously over relevant demand ✓

Price discrimination means charging

1. A one price to all buyers always ✓
2. B different prices for the same product to different buyers ✓
3. C only cost-plus pricing ✓
4. D only peak-load pricing by law ✓

First-degree (perfect) price discrimination charges

1. A two-part tariffs only ✓
2. B each unit at the buyer's maximum willingness to pay ✓
3. C same price to all ✓
4. D only quantity discounts ✓

Third-degree price discrimination charges different prices based on

1. A identical elasticities in all markets ✓
2. B MC only without demand ✓
3. C random lottery only ✓
4. D identifiable market segments with different elasticities ✓

A necessary condition for price discrimination is

1. A perfect competition ✓
2. B identical demand elasticities ✓
3. C zero market power ✓
4. D ability to prevent resale (arbitrage) between markets ✓

Monopolistic competition features

1. A one firm only ✓
2. B homogeneous product and price taking ✓
3. C many firms selling differentiated products with free entry ✓
4. D blocked entry forever ✓

In long-run monopolistic competition equilibrium, firms typically

1. A earn permanent supernormal profit ✓
2. B produce at minimum ATC always ✓
3. C face perfectly elastic demand ✓
4. D earn normal profit with excess capacity ✓

Product differentiation in monopolistic competition makes the firm's demand

1. A perfectly elastic ✓
2. B perfectly inelastic ✓
3. C vertical at MR ✓
4. D downward sloping but relatively elastic ✓

Oligopoly is a market structure with

1. A many price-taking firms ✓
2. B one seller only ✓
3. C infinite free entry always ✓
4. D few interdependent sellers ✓

The kinked demand curve model of oligopoly explains

1. A perfect competition pricing ✓
2. B price rigidity when rivals match price cuts but not increases ✓
3. C monopoly MR=AR ✓
4. D always rising prices ✓

In the kinked demand model, MR is discontinuous at the kink, so

1. A price must change with every MC shift ✓
2. B MR equals AR always ✓
3. C output is always zero ✓
4. D MC can shift within a range without changing price ✓

A cartel is an agreement among firms to

1. A coordinate output/prices to raise joint profits ✓
2. B increase competition always ✓
3. C eliminate all barriers ✓
4. D force perfect competition ✓

Cartels tend to be unstable because

1. A members have incentive to cheat by secretly expanding sales ✓
2. B profits are always zero ✓
3. C entry is impossible ✓
4. D MR always equals AR ✓

Collusive oligopoly aims to behave like

1. A a joint monopolist maximizing industry profit ✓
2. B perfectly competitive firms ✓
3. C price takers only ✓
4. D non-profit cooperatives only ✓

Non-price competition is common in

1. A perfect competition only ✓
2. B pure monopoly with no rivals only ✓
3. C oligopoly and monopolistic competition ✓
4. D barter economies only ✓

Barriers to entry under monopoly may include

1. A free entry of identical firms ✓
2. B patents, control of key resources and legal franchises ✓
3. C zero fixed costs always ✓
4. D perfect information only ✓

Allocative efficiency requires

1. A price equal to AFC ✓
2. B MR equal to AR always ✓
3. C ATC maximized ✓
4. D price equal to marginal cost ✓

A competitive industry's long-run supply may be upward sloping if

1. A all inputs are free ✓
2. B technology never changes ✓
3. C input prices rise as industry expands (increasing-cost industry) ✓
4. D demand is zero ✓

Monopoly power is often measured by the Lerner index

1. A P/MC only without gap ✓
2. B (P − MC)/P ✓
3. C MC − P ✓
4. D ATC/AFC ✓

In perfect competition, long-run industry equilibrium implies

1. A P > MC always ✓
2. B P = MC = minimum ATC ✓
3. C MR < MC always ✓
4. D P = AFC only ✓

Bilateral monopoly refers to

1. A many sellers and many buyers ✓
2. B perfect competition ✓
3. C a single seller facing a single buyer ✓
4. D pure monopsony without a seller ✓

Monopsony is a market with

1. A a single buyer of a factor or product ✓
2. B a single seller only ✓
3. C many buyers ✓
4. D free entry of buyers ✓

Under perfect competition, economic profit in the short run

1. A must always be zero ✓
2. B must always be positive ✓
3. C cannot be negative ✓
4. D can be positive, zero or negative ✓

Limit pricing by an incumbent aims to

1. A maximize short-run monopoly profit always ✓
2. B invite free entry ✓
3. C eliminate MC ✓
4. D set price low enough to deter entry ✓

Predatory pricing refers to

1. A always pricing at MC ✓
2. B temporarily pricing below cost to drive rivals out ✓
3. C charging different elasticities fairly ✓
4. D cost-plus only ✓

Cournot oligopoly assumes firms choose

1. A prices only in Stackelberg fashion ✓
2. B quantities simultaneously taking rivals' output as given ✓
3. C advertising only ✓
4. D zero output always ✓

Bertrand competition with identical products and constant MC tends to

1. A drive price down to marginal cost ✓
2. B yield monopoly price always ✓
3. C eliminate all sales ✓
4. D raise price above monopoly ✓

Excess capacity theorem is associated with

1. A monopolistic competition in the long run ✓
2. B perfect competition long run ✓
3. C pure monopoly min ATC always ✓
4. D cartel min AVC ✓

A patent creates temporary monopoly mainly to

1. A ensure perfect competition ✓
2. B encourage innovation by granting exclusive rights ✓
3. C eliminate all R&D ✓
4. D fix prices forever ✓

In monopoly, the relationship between AR and MR (linear demand) is

1. A MR lies above AR ✓
2. B MR bisects the horizontal intercept of AR (MR falls twice as steep) ✓
3. C MR equals AR ✓
4. D MR is horizontal ✓

Selling costs (advertising) are especially important in

1. A perfect competition with homogeneous goods ✓
2. B pure barter only ✓
3. C command economies only ✓
4. D monopolistic competition and oligopoly ✓

Price leadership in oligopoly means

1. A all firms independently ignore rivals ✓
2. B government sets all prices ✓
3. C one firm sets price and others follow ✓
4. D MC is ignored ✓

Contestable market theory stresses that

1. A only actual many firms matter ✓
2. B entry costs are always infinite ✓
3. C potential entry can discipline incumbents even with few firms ✓
4. D collusion is costless ✓

Under perfect competition, consumer surplus is generally

1. A larger than under monopoly for the same cost conditions ✓
2. B always zero ✓
3. C smaller than under monopoly always ✓
4. D equal to producer surplus always ✓

A discriminating monopolist can increase profit if

1. A elasticities are identical and resale is free ✓
2. B markets have different price elasticities of demand ✓
3. C MC is infinite ✓
4. D demand is zero ✓

Two-part tariff is a form of pricing that combines

1. A a fixed fee plus a per-unit charge ✓
2. B only peak prices ✓
3. C only auctions ✓
4. D only cost-plus without fee ✓

In the short run, a monopolist may continue production with losses if

1. A price is below AVC ✓
2. B price covers AVC (and contributes to fixed costs) ✓
3. C AR is zero ✓
4. D MC exceeds ATC always without covering AVC ✓

Homogeneous oligopoly sells

1. A highly differentiated brands only ✓
2. B unique patented goods only ✓
3. C standardized products (e.g., steel, cement) ✓
4. D public goods only ✓

Differentiated oligopoly is typical of

1. A wheat farming under perfect competition ✓
2. B pure monopoly utilities only ✓
3. C automobiles and soft drinks ✓
4. D labour markets only ✓

The Herfindahl-Hirschman Index (HHI) measures

1. A only the number of workers ✓
2. B only price elasticity ✓
3. C market concentration using squared market shares ✓
4. D only GDP growth ✓

X-inefficiency under monopoly refers to

1. A producing where P = MC ✓
2. B zero economic profit ✓
3. C perfect cost control ✓
4. D failure to minimize costs due to lack of competitive pressure ✓

In perfect competition, the industry demand curve is

1. A downward sloping while firm demand is horizontal ✓
2. B horizontal for the industry ✓
3. C upward for every firm ✓
4. D identical to MR for industry ✓

A profit-maximizing monopolist never produces on the inelastic portion of demand because

1. A MC is always zero ✓
2. B MR would be negative there ✓
3. C AR equals MR ✓
4. D ATC is minimized there ✓

Dumping in international trade is related to

1. A identical prices worldwide always ✓
2. B perfect competition only ✓
3. C price discrimination between domestic and foreign markets ✓
4. D zero tariffs only ✓

Game theory is especially useful for analyzing

1. A perfectly competitive price taking ✓
2. B pure monopoly without rivals ✓
3. C oligopolistic strategic behaviour ✓
4. D national income identities only ✓

Nash equilibrium in oligopoly means

1. A all firms earn zero profit ✓
2. B no firm can improve payoff by unilaterally changing strategy ✓
3. C collusion is automatic ✓
4. D price equals ATC always ✓

Public regulation of natural monopoly often aims to

1. A maximize monopoly deadweight loss ✓
2. B ban all production ✓
3. C allow P closer to AC or MC while ensuring viability ✓
4. D force P far above AC ✓

In monopolistic competition, advertising can

1. A never affect demand ✓
2. B only raise MC without demand effects ✓
3. C eliminate differentiation ✓
4. D shift and/or change the elasticity of the firm's demand ✓

The supply curve concept is not well-defined for

1. A perfect competition ✓
2. B competitive industry long run ✓
3. C constant-cost competitive industry ✓
4. D monopoly (no unique P–Q supply relation independent of demand) ✓

Peak-load pricing charges higher prices when

1. A demand is high relative to capacity ✓
2. B demand is always zero ✓
3. C MC is negative ✓
4. D markets are perfectly competitive only ✓

A dominant firm with a competitive fringe faces

1. A perfectly elastic demand only ✓
2. B residual demand after fringe supply ✓
3. C no demand curve ✓
4. D only government demand ✓

Cross-subsidization by a multi-product firm means

1. A using profits from one market to support another ✓
2. B pricing every product at MC only ✓
3. C never using joint costs ✓
4. D perfect competition in all lines ✓

In the long run under free entry monopolistic competition

1. A profit remains supernormal forever ✓
2. B the number of firms adjusts until economic profit is zero ✓
3. C losses persist forever ✓
4. D entry is blocked by definition ✓

Perfect competition assumes perfect knowledge so that

1. A no firm can charge more than the market price ✓
2. B firms can hide quality forever ✓
3. C buyers never learn prices ✓
4. D arbitrage is impossible ✓

A multiplant monopolist allocates output so that

1. A only one plant produces ✓
2. B MC differs arbitrarily ✓
3. C MC is equalized across plants (and equals MR) ✓
4. D AR equals AFC in each plant ✓

Tacit collusion differs from a formal cartel because

1. A coordination occurs without an explicit agreement ✓
2. B it is always legal and efficient ✓
3. C MR equals AR ✓
4. D entry is free ✓

Compared with perfect competition, monopoly typically results in

1. A higher price and lower output ✓
2. B lower price and higher output ✓
3. C identical P and Q ✓
4. D zero consumer surplus always ✓