AG ECON Open Book Exam 4

Which of the following applies to monopolistic competition?

1)Many firms 2) Differentiated products. 3) Demand curve that falls between perfect competition and monopoly. 4) No barriers to entry.

Which of the following would be classified as a differentiated product produced by a monopolistic competitor?

Chanel No. 5 perfume

Which of the following is a characteristic of perfect competition?

Many buyers and sellers. 2) Homogeneous products; the products produced are virtually identical. 3) There are no barriers to entering or exiting the market. 4) Buyers and sellers have all the relevant information about the product being traded in the market.

_______________ refers to the additional revenue gained from selling one more unit.

Marginal Revenue

If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its

allocative efficiency

Practices that reduce competition without actual documented agreements between firms to raise price are commonly referred to as ____________________.

Restrictive practices

The marginal revenue curve for a monopolist __________________ the market demand curve.

always lies beneath

The term "tie-in sales" is synonymous with

bundling

Regulations that permit a regulated firm to cover its costs and to make a normal level of profit are commonly referred to as ___________________.

cost-plus regulation.

It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00

could likely result in a notable loss of sales to competitors.

In perfect competition,

each producer can increase or decrease output without noticeably affecting the overall price and quantity supplied in the market.

In a monopolistic competitive industry, firms can try to differentiate their products by

enhancing product's physical aspects and all of the above.

In competitive settings, profits will lead firms to _________________ and losses will lead firms __________________, so the incentives for producing at low cost and coming up with new ways of pleasing customers are strong.

enter the market; to exit

Which of the following is most unlikely to present a barrier to entry into a market?

deregulation

If oligopolistic firms banded together with the intention of acting like a monopoly, it would likely result in their being able to

divide up the monopoly level of profit amongst themselves.

Which of the following has become a common condition for allowing a merger of large firms?

commitment to sell off certain parts of the firms

The US Federal Trade Commission justifies their record of approval of most mergers by asserting that, even though competition is diminished by consolidating two firms into one, mergers actually benefit

competition and consumers by allowing firms to operate more efficiently.

The four-firm ________________ measures the percentage share of the total sales in the industry that is accounted for by the largest four firms.

concentration ratio

An agreement between a manufacturer and a distributor stipulating that a dealer will only distribute that manufacturer's products would be classified as a form of _________________.

exclusive dealing.

Which of the following is most likely to be a monopoly?

local electricity distributor

In the _________________, the perfectly competitive firm will react to profits by __________________.

long run; increasing its production

In the __________________, the perfectly competitive firm will react to profits by __________ .

long run; increasing its production

In the_______________, the perfectly competitive firm will react to losses by______________________.

long run; reducing production or shutting down

In economics, the term "shutdown point" refers to the point where the

marginal cost curve crosses the average variable cost curve.

The change in total cost divided by the change in quantity produced describes

marginal costs

Under perfect competition, any profit-maximizing producer faces a market price equal to its

marginal costs

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect _________________ and __________________.

marginal revenue; marginal cost

The largest cattle rancher in a given region will be unable to have a ____________ if sufficient numbers of smaller cattle ranchers provide sources of competition.

monopoly

Idaho farmers can sell as large a quantity of their potato crop as they wish,

provided each is willing to accept the prevailing market price.

In monopolistic competition, the end result of entry and exit is that firms end up with a price that lies

on the downward-sloping portion of the average cost curve.

In the closing decades of the nineteenth century, many industries in the U.S. economy were dominated by a single firm that had most of the sales for the entire country. In many cases these large firms were ____________________.

organized in the legal form of a trust

Government ____________ regulations specify that inventors will maintain exclusive legalrights to their respective inventions for ________________.

patent; a limited time

Firms operating in a market situation that creates ________________ sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

Firms operating in a market situation that creates___________________ sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is ____________________.

preparing to exit operations.

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price.

If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?

price of competing products

The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's ability to

sell any quantity it wishes at the prevailing market price.

What role can advertising play with respect to differentiated products?

shapes consumers intangible preferences

In the ___________________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where _______________.

short run; losses are smallest

A monopolistically competitive firm may earn abnormally high profits in the

short term, but the process of entry will drive those profits to zero in the long run.

If a firm's revenues do not cover its average variable costs, then that firm has reached its ________________.

shutdown point

There have been two especially important shifts in how markets are defined in recent decades: one involves and the other involves .

technology; globalization

The market structure of an industry refers to:

the number of sellers in a particular market. 2) the type of products that are sold. 3) how easy or difficult it is for new producers to enter the market.

If an industry is perfectly competitive or monopolistically competitive, then the government has relatively little reason for concern about ___________________.

the extent of competition.

If one firm operating in an oligopoly raises its price and other firms do not do so

the sales of the firm that increased its price will decline sharply.

For a pure monopoly to exist,

there is a single seller in a particular industry

A manufacturer that only allows a consumer to purchase one product if they also buy another product is using ____________________ to increase its profits.

tie in sales

In the business world, a _________________ is recognized as a legally acceptable way for any business to keep knowledge of its particular methods of production from being known by competing firms.

trade secret

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

what quantity to produce

Which one of the following is the most accurate description of a monopolist?

a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry.

Intellectual property law is a body of law that includes

Copyright legislation, as well as all of the above.

Which of the following applies to oligopoly?

1) Small number of firms. 2) Mututal interdependence among the firms. 3) Barriers to entry. 4) Kinked demand curve.

n a monopolistic competitive industry, firms can try to differentiate their products by

1) creating optimal perceptions of the product. 2) choosing optimal locations from which the product is sold. 3) enhancing the intangible aspects of the product. 4) enhancing product's physical aspects and all of the above.

In a monopoly,

1)there is no competition. 2) there is a single firm with complete market power. 3) the single firm can change whatever price it wishes.

____________________ give government the power to block certain mergers, and in some cases, to break up large firms into smaller ones.

Antitrust laws

________________ arises when firms act together to reduce output and keep prices high.

Collusion

The form of legal protection intended to prevent reproduction of original works is referred to as___________________ law.

Copyright

Which of the following government institutions bears the responsibility of enforcing US antitrust laws

Department of Justice

What was created by the U.S. government in 1914 to specifically define what types of competition were legally unfair?

Federal Trade Commission

The term ________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

Price Taker

Government passed the __________________ to limit the power of large, consolidated firms that were run by trustees as if they were a single firm.

Sherman Antitrust Act in 1890

A firm that holds a monopoly position in the market place is

a price maker

A business _________________ occurs when, for practical purposes, one firm purchases another.

acquisition

_________________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.

an oligopoly

Antitrust laws were created to give government the power to

block certain mergers and break up large firms into smaller ones.

A _____________ refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price.

cartel

The demand curve as perceived by a perfectly competitive firm is .

downward sloping

The demand curve as perceived by a monopolistic competitor is

downward-sloping

If a perfectly competitive firm raises its price, the quantity demanded of its product

falls to zero.

The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is

game theory.

The term _________________ refers to the percentage share of a firm's total sales in the market.

market share

The Herfindahl-Hirschman index is calculated by taking _____________, squaring it, and adding them up to get a total.

market share of each firm in the industry

The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to

match price cuts, but not price increases.

Which of the following is a valid criticism of the reduction of competition that results from corporate mergers?

merged firms can increase price and maintain permanently higher profits

Which of the following typically leads to two formerly separate firms being under common ownership?

mergers and acquisitions

Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call .

monopolistic competition

A ______________________ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve.

natural monopoly

What role does the US government play with respect to market competition?

policing anticompetitive behavior and prohibiting contracts that restrict competition

When the regulator sets a price that a firm cannot exceed over the next few years, the regulator is enforcing

price cap regulation.

A monopolist is able to maximize its profits by

producing output where MR = MC and charging a price along the demand curve.

The typical, perfectly competitive corn farmer has no control over the following in the short run except

quantity of fertilizer used.

In the event that a single energy company obtains control of all the natural gas production in the US, it would most likely

raise prices, cut production, and realize positive economic profits.

The term ____________________ refers to a situation where the firms supposedly being regulated end up playing a large role in setting the regulations that they will follow.

regulatory capture

If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,

they will be unable to earn higher-than-normal profits in the long run.