ECO 232 Exam 2
If output increases under price discrimination, social surplus usually: A) increases. B) decreases. C) remains the same. D) changes in an indeterminate direction.
increases.
A monopolist can raise its price further above marginal cost, the more ______ is the ______ for its product. A) elastic; demand B) inelastic; demand C) elastic; supply D) inelastic; supply
inelastic; demand
Advertising: A) is about price and quality only. B) is informative only. C) infers that the seller expects the product to make a big splash. D) is only when the seller fears the product will not make a big splash.
infers that the seller expects the product to make a big splash.
Bundling increases ________ and hence increases the incentives to ________. A) costs; innovate B) profits; innovate C) revenue; price higher D) demand; enhance customer service
profits; innovate
(Table: Oil Production) Refer to the table. What are the fixed costs of production for this firm? A) $34 B) $4 C) $30 D) $50
$30
Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. How much more does the seller make if it bundles than if it sells the products individually? $10 $20 $30 $40
$30
Marcie quit her job as a preschool teacher, which paid an annual salary of $28,000, and became a street food vendor. She used $8,000 out of her savings account that paid a 4% annual interest rate to buy a street cart to sell food. In her first year of operations, she spent $10,000 on food and supplies (napkins, cups, plates, etc.) and earned total revenue of $45,000. Marcie's accounting profit is ______ and economic profit is ______. A) $28,000; $20,000 B) $35,000; -$1,000 C) $27,000; $17,000 D) $35,000; $6,680
$35,000; $6,680
GlaxoSmithKline (GSK) maximizes profit by producing a quantity of 800 pills where marginal cost is $2 and average cost is $4. Consumers are willing to pay as much as $10 per pill when the quantity supplied is 800 pills. What is the maximum amount of profit that GSK can earn under these conditions? $3,200 $4,800 $6,400 $8,000
$4,800
(Table: Competitive Firm 2) Refer to the table that shows the revenue and cost schedules for a competitive firm. What is the average fixed cost at the profit-maximizing quantity? A) $54.30 B) $4.28 C) $50 D) $80
$4.28
(Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the deadweight loss when this monopoly is unregulated. $6,400 $2,800 $850 $400
$400
(Figure: Monopoly Profits) Refer to the figure. The monopolist earns a profit of: $630. $420. $540. $480.
$420.
(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—Market A and Market B—if the monopolist were to charge a uniform price of $10 in both markets, how much profit would the monopolist lose? $234.75 $146.25 $48.75 $97.50
$48.75
(Table: Willingness to Pay) Refer to the table. If the firm were to engage in bundling, its profits would increase by how much relative to setting individual prices for each good? $65 $225 $50 $210
$50
(Table: Competitive Firm) Refer to the table. The fixed cost for this firm is: $80. $90. $50. $100.
$50.
(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—Market A and Market B—through the process of price discrimination, how much profit is the monopolist making in Market B? $260 $780 $1,040 $520
$520
(Table: Ozzie's, Manny's Payoff Table) Refer to the table. The equilibrium outcome is: A) undefined in this game. B) $80, $80. C) $60, $60. D) ($20, $130) or ($130, $20)
$60, $60.
More potential sellers ______ the elasticity of ______ firm-level demand. A) increase; short-run B) decrease; short-run C) increase; long-run D) decrease; long-run
increase; short-run
Price times quantity minus total cost equals: A) total revenue. B) fixed costs. C) marginal revenue. D) profit.
profit.
Which of the following is NOT a result of the network effect? A) Facebook is more valuable to a person the more friends use it. B) eBay is more valuable to a buyer the more sellers there are. C) eBay is more valuable to a seller the more buyers there are. D) "Network effects" tend to limit the size of the firm.
"Network effects" tend to limit the size of the firm.
(Figure: Price-Discriminating Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—Market A and Market B—if the monopolist were to charge a uniform price PU between the two markets, in which range would the price fall? A) $6 < PU < $14 B) $6 < PU < $10 C) $10 < PU < $16 D) $10 < PU < $14
$10 < PU < $16
(Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort sets prices for lodging and golf individually, it will charge ________ for one night's stay and ________ for one round of golf. $50; $110 $110; $80 $50; $35 $80; $57.50
$110; $80
(Figure: Paint Market 2) What is the deadweight loss (if any) from the monopoly in this diagram relative to its optimum quantity? $125,000 $250,000 $300,000 No deadweight loss
$125,000
(Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort bundles a one-night stay with a round of golf, it will charge: $130. $145. $110. $190.
$130.
(Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the change in consumer surplus from an unregulated monopoly to a regulated monopoly. $6,400 $2,800 $400 $3,600
$2,800
Damien produces 400 gallons of milk a day in a very competitive industry. The market price for a gallon of milk is $2. Damien's marginal revenue per gallon of milk is: $200. $800. $2. $0.
$2.
(Table: Maximum Willingness to Pay for Word and Excel) Refer to the table. If Microsoft sells each product, Word and Excel, individually, what is the maximum profit Microsoft can make from selling the two products? (Assume the marginal costs of production are zero.) $210 $100 $220 $160
$210
(Table: Barrels of Oil 2) Refer to the table. The maximum profit available to the company is: A) $184. B) $210. C) $224. D) $266.
$224.
(Table: Willingness to Pay) Refer to the table. If the firm were to engage in bundling, total surplus is: $65. $50. $160. $225.
$225.
(Figure: Demand 2 )Two firms in an industry act as a cartel, with each firm agreeing to charge a price of $16 and sell two units of output. If one of them cheats and produces two more units of output, the cheating firm's total revenue increases by ______ and the other firm's total revenue decreases by ______. $24; $4 $28; $14 $84; $32 $12; $8
$24; $4
(Table: Myrtle Beach Golf) Refer to the table. Assume that marginal costs of production are zero. If the resort bundles a one-night stay with a round of golf, how much profit will it make on David and John? $260 $380 $290 $275
$260
(Table: Barrels of Oil) Refer to the table. The change in profit from producing the second barrel of oil is ________, and the marginal cost from producing the seventh barrel of oil is ________. $140; $140 $100; $20 $60; $140 $140; $20
$60; $140
(Table: Oil Output) Refer to the table. The equilibrium outcome is: $78, $78. $65, $65. $89, $60. $60, $89.
$65, $65
(Figure: Monopolist 5 )In these figures, the markup of price over marginal cost for the relatively inelastic demand is ______, and the markup of price over marginal cost for the relatively elastic demand is ______. A) $10; $2 B) $15; $7.50 C) $7.50; $3 D) $5; $1
$7.50; $3
(Table: Competitive Firm) The marginal cost of the fifth unit of output is: $70. $90. $450. $300.
$70.
(Table: Oil Production) Refer to the table. What is the profit of producing 10 barrels of oil? $80 $154 $180 $194
$80
(Figure: Price-Discriminating Monopolist 2) Consumer surplus with a single-price monopoly is ______, and consumer surplus with a perfect price discrimination is ______. $12; $4 $6; $0 $14; $10 $8; $0
$8; $0
Rex Pharma produces anti-acid medication that is sold in a monopoly market. ' Rex Pharma sells 10,000,000 pills for $12.50 per pill. If the pills were sold for the marginal cost of production of $0.50, Rex Pharma would be able to sell 25,000,000 pills. What is the deadweight loss of this monopoly market? $90,000,000 $120,000,000 $5,000,000 $12,500,000
$90,000,000
(Table: Competitive Firm) Refer to the table. The market price for the product is: A) $90. B) $80. C) $100. D) A dollar amount, but it cannot be determined from the information in the table.
$90.
(Figure: World Market for Maple Syrup)Refer to the figure. If you are one of literally thousands of maple syrup producers and you wanted to increase your maple syrup production from 100 gallons to 110 gallons, what price would you charge? $100 $110 $96 $10
$96
A monopolist sells in two different markets and charges the same price of $10 in both markets. In Market A, the demand curve is described by Qd = 50 - 2P. In Market B, the demand curve is described by Qd = 60 - P. If the monopolist lowers prices by $1 in the market with the more elastic demand and raises prices by $1 in the market with the more inelastic demand curve, by how much does its total revenue change? -$27 $459 $767 $308
-$27
The marginal revenue (MR) for a firm is a constant $45, and the firm's marginal cost (MC) is given by MC = 1.5Q (where Q is quantity of output). What is the firm's profit-maximizing level of output? 67.5 30 45 15
30
(Figure: Two-Firm Industry) Refer to the figures. At a market price of $20, the total quantity supplied in the industry is: 32 units. 45 units. 15 units. 25 units.
15 units.
(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. Assume that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the resultant profit earned by Country A? 70,000 6,000 24,000 30,000
30,000
(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. Assume that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the resultant profit earned by each of the other two countries? 20,000 30,000 70,000 24,000
20,000
(Figure: Increasing Costs) Refer to the figure. If an industry consists of two firms, Firm 1 and Firm 2, as $9 shown in the diagram, what is the industry's quantity supplied at a price of $7 and $9? A) 0 and 5 units, respectively B) 4 and 5 units, respectively C) 8 and 10 units, respectively D) 4 and 10 units, respectively
4 and 10 units, respectively
(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. If the countries create a cartel and agree to mimic monopoly-like behavior, what level of output would each firm produce? 1,200 400 200 700
400
(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. Assume that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the new market price when Country A cheats on the agreement? 60 50 20 40
50
Julius builds dining chairs that he sells for $200 a chair. His fixed costs are $1,000 (for workshop equipment). Each chair costs him $50 in materials to produce plus an extra $25 for each previous chair made that day which reflects Julius' increasing exhaustion. (Thus, the first chair cost $50, the second costs $75, the third cost $100, etc.) Assume time requirements in producing a chair are not a factor. How many chairs should Julius produce each day? A) 2 B) 5 C) 7 D) 12
7
Table: Competitive Firm Quantity (Units) Total Revenue ($) Total Cost ($) 0 0 50 1 90 80 2 180 120 3 270 170 4 360 230 5 450 300 6 540 380 7 630 470 8 720 570 (Table: Competitive Firm) Refer to the table. The profit maximizing output for this firm is: A) 5. B) 6. C) 7. D) 8.
7
Which of the following is the main principle behind price discrimination? A) If the demand curves are different, it is more profitable to set different prices in different markets than a single price that covers all markets. B) To maximize profit the firm should set a higher price in markets with more inelastic demand. C) Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price discrimination. D) All of the answers are correct.
All of the answers are correct.
Suppose that the government decided to reduce pharmaceutical patent protection by requiring companies to sell their drugs at marginal cost. What are the likely consequences of such a policy? A) There would be an increase in consumer surplus. B) The deadweight loss in the market would decline. C) The future supply of new drugs would decrease. D) All of these statements are correct.
All of these statements are correct.
Which of the following is NOT subsidized through advertising? Google searches cable TV Apple iPhones The Wall Street Journal
Apple iPhones
Which statement about cost is correct? A) Marginal cost is constant. B) Marginal cost is always falling. C) Average total cost is U-shaped. D) Average total cost always declines.
Average total cost is U-shaped.
Which of the following statements regarding cartels is FALSE? A) Cheating by cartel members is less profitable and easier to detect if there are fewer firms in the industry. B) New entrants can be prevented when the cartel-controlled good is limited in supply. C) Cartels should control natural resources that are rare and more valuable. D) Cartels are more successful if they are backed by government and the power of the law.
Cartels should control natural resources that are rare and more valuable.
Haircuts for men are often cheaper than haircuts for women, even when they are offered by the same stylist. Why might this be price discrimination? A) Everyone has the same demand for haircuts. B) The marginal cost of supplying a haircut may be lower for male than for female customers, and haircutting is a competitive industry with few fixed costs. C) Stylists are misogynists. D) Demand for haircuts for women might be more inelastic than demand for haircuts for men, and haircuts are impossible to arbitrage.
Demand for haircuts for women might be more inelastic than demand for haircuts for men, and haircuts are impossible to arbitrage.
If the Bill and Melinda Gates Foundation were to buy out and destroy the patent for Combivir, which of the following would NOT be one of the effects? A) Drug companies would have no incentive to create new and better drugs. B) The price of Combivir would fall. C) The number of people treated with Combivir would rise. D) No one would have a monopoly on Combivir.
Drug companies would have no incentive to create new and better drugs.
Which of the following is/are TRUE regarding monopolistic competition? I. few sellers II. free entry III. product differentiation A) III only B) I and III only C) II and III only D) I, II, and III
II and III only
Which of the following statements are TRUE? I. Monopolists can raise prices as high as they want and still earn economic profits. II. Even with no competitors, firms face a downward-sloping demand curve. III. Just like competitive firms, monopolists maximize profits where marginal revenue equals marginal cost. A) I and III only B) II and III only C) I and II only D) I, II, and III
II and III only
Another possible source of why cartels break down is the growth potential of the industry. Although industries with a lot of potential are more willing to invest in the time to form a collusive agreement, such growth potential also deters them from making this investment. Why would that be? A) High-growth industries are more likely to be monitored by the government. B) High-growth industries are less likely to face an inelastic demand curve. C) High-growth industries are more likely to have lots of entrants. D) High-growth industries are less likely to have the support of the government.
High-growth industries are more likely to have lots of entrants.
Which of the following is/are TRUE? I. Advertising embodies both information and persuasion. II. Perfectly competitive firms and monopolistically competitive firms both advertise. III. Monopolies and monopolistically competitive firms both advertise. A) I only B) I and II only C) I and III only D) I II and III
I II and III
Cartel agreements tend to fail: I. if they produce manufactured rather than natural goods. II. if they produce natural rather than manufactured goods. III. in the long run as demand curves become more elastic. A) I only B) I and III only C) II and III only D) III only
I and III only
Firms in monopolistic competitive industries: I. sell their products at a higher price than if their industry were strictly competitive. II. sell their products at the same price as if they were in a monopoly market. III. have a high incentive to innovate with new products and better quality. A) I and II only B) II and III only C) I and III only D) I, II, and III
I and III only
Which of the following is/are TRUE? I. A monopolistic competitive firm sets price > MC. II. A monopolistic competitive firm sets price = MC. true III. A monopolistic competitive firm operates at MC = MR. A) I only B) II only C) I and III only D) II and III only
I and III only
Which of the following statement(s) is/are TRUE? I. Because monopolistically competitive firms sell differentiated products, their demand curves are downward sloping. II. Monopolistically competitive firms earn above-normal profits because of high entry barriers. III. As firms enter a monopolistically competitive industry, the demand curves of the existing firms shift down and to the left. A) I and III only B) I and II only C) II only D) III only
I and III only
Which of the following statements is TRUE? I. People with common diseases live longer than people with rarer diseases. II. Developing drugs for common diseases is a lot less expensive than developing drugs for rare diseases. III. It is more profitable to make drugs for common diseases because the market is bigger than it is for rare diseases. A) I and II only B) I and III only C) II only D) III only
I and III only
Consumers benefit from advertising: I. by gaining product information. II. by being persuaded to try a new product they might like. III. when the ad provides a signal of the product's quality. IV. if the ad leads to a lower price for the product. A) IV only B) II and III only C) I and II only D) I, II, III and IV
I, II, III and IV
A perfectly competitive industry exists under which of the following conditions? I. The product sold is similar across firms. II. There are many sellers, each small relative to the total market. III. There are many sellers, each with total assets less than $2 million. IV. The threat of competition exists from potential sellers that have not yet entered the market. A) I and II only B) I, II, and III only C) I, III, and IV only D) I, II, and IV only
I, II, and IV only
Which of the following statements is TRUE? I. Perfect price discrimination maximizes consumer surplus. II. Perfect price discrimination maximizes gains from trade. III. Under perfect price discrimination, the monopolist produces until price equals marginal cost. A) I only B) I and II only C) II and III only D) I, II, and III
II and III only
Which of the following is/are TRUE of monopolistic competition? I. Monopolistic competitive firms do not produce at the minimum of their average cost curves. II. Monopolistic competitive firms produce at the minimum of their average cost curves. III. Monopolistic competitive firms earn higher profits than monopolies. A) I only B) II only C) I and III only D) II and III only
II only
Which of the following statements is TRUE? I. The deadweight loss from a monopoly refers to the loss in consumer surplus that is captured by the monopolist as profit. II. According to theory, if the government sets a natural monopolist's price equal to marginal cost, the socially optimum quantity of output will result. III. Deregulation of cable television caused higher prices and fewer programming choices for customers. A) I only B) II only C) I and III only D) I, II, and III
II only
Which of the following statements is TRUE? I. A cartel is a single firm with competitive market power. II. A cartel is a group of firms that practice price discrimination in competitive markets. III> A cartel is a group of firms that attempt to reduce market output. IV. A cartel acts as if it were a monopolist in that market. A) I only B) II, III, and IV only C) II only D) III and IV only
III and IV only
Which statement is TRUE? A) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit. B) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling fewer units at a higher price per unit. C) When a monopolist produces where MR < MC it always earns a positive economic profit. D) A monopolist is guaranteed monopoly profits by the government.
If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.
Why might the benefits of monopolistic competition outweigh the inefficiencies? A) Monopolistic competition has higher deadweight loss than monopoly. B) In monopolistic competition, firms do not produce at their minimum average cost. C) In monopolistic competition, firms do not price at marginal cost. D) If we had perfect competition instead of monopolistic competition, we would not have all the variety and innovation that we have today.
If we had perfect competition instead of monopolistic competition, we would not have all the variety and innovation that we have today.
How can the pursuit of market power lead to the social good? A) It always leads to the lowest prices for the customers. B) It can lead to innovation. C) It leads to less product differentiation. D) It can lead to price discrimination.
It can lead to innovation.
Which of the following is NOT a feature of the prisoner's dilemma? A) It explains why cartels fail. B) It describes how producers can lock themselves into a suboptimal outcome by pursuing their own self-interest. C) It shows a dominant strategy for each of the players. D) It explains why there is so much recidivism.
It explains why there is so much recidivism.
When a single firm can supply the entire market at a lower cost than two or more firms, the firm can be said to have which of the following characteristics? A) It must be producing at the socially optimal level of output. B) It is a natural monopoly. C) The marginal cost curve rises at an increasing rate. D) It is one of two firms in the industry.
It is a natural monopoly.
Which of the following best describes a competitive industry? A) Its firms sell similar products and have little control over their prices; there are many buyers and sellers and each is relatively small compared with the overall market. B) Its firms sell similar products and have direct control over their prices; there are many buyers and sellers and each is relatively small compared with the overall market. C) Its firms have little control over the price of their product; the demand curve for each firm's product is downward sloping; there are many firms. D) Its firms sell differentiated products and there are few potential sellers. They have little control over the price of their product; there are many relatively small buyers.
Its firms sell similar products and have little control over their prices; there are many buyers and sellers and each is relatively small compared with the overall market.
Monopolistically competitive firms create: A) zero deadweight loss. B) a small deadweight loss. C) a large deadweight loss. D) negative deadweight loss
a small deadweight loss.
Jonathan values Word at $100 and Excel at $90, and Ashley values Word at $80 and Excel at $60. Why does bundling fail to raise the seller's profits in this case? A) Jonathan's and Ashley's values for Word and Excel are negatively correlated. B) Jonathan's and Ashley's values for Word and Excel are positively correlated. C) Word and Excel don't work well with each other. D) Word and Excel are valued highly even when bought separately.
Jonathan's and Ashley's values for Word and Excel are positively correlated.
If the monopolist's demand is given by P = 100 - Q, marginal revenue is given by: A) MR = 100 - 2Q. B) MR = 100 - Q. C) MR = 100Q. D) MR = 100Q - Q2.
MR = 100 - 2Q.
A monopolistically competitive firm operates where: A) MR < MC. B) MR = MC. C) MR > MC. D) MR + MC = 0.
MR = MC.
A monopolist increased output by 100 units but cut prices by $20 to sell this additional output at $1,000 per unit. What is TRUE about marginal revenue? A) MR totals $2,000. B) MR totals $100,000. C) MR totals -$2,000. D) MR cannot be calculated with the information given.
MR cannot be calculated with the information given.
(Table: Ozzie's, Manny's Payoff Table) Refer to the table. Which of the following statements is TRUE? A) Manny and Ozzie do not have dominant strategies. B) Manny's dominant strategy is low price, and Ozzie's dominant strategy is high price. C) Manny's dominant strategy is high price, and Ozzie's dominant strategy is high price. D) Manny's dominant strategy is low price, and Ozzie's dominant strategy is low price.
Manny's dominant strategy is low price, and Ozzie's dominant strategy is low price.
Which of the following statements is TRUE? A) Market power is the ability to raise price and sell more units of a good. B) Market power may result from government regulations or patent protection. C) A monopoly is a firm without market power. D) All of the answers are correct.
Market power may result from government regulations or patent protection.
(Figure: Calculating Profits) Refer to the figure. How much profit is the firm making at the profit-maximizing quantity? A) a profit of $200 B) The firm is not making a profit—it is making a loss of $220. C) The firm is not making a profit—it is making a loss of $200. D) The firm is not making a profit—it is making a loss of $320.
The firm is not making a profit—it is making a loss of $220.
Which one of the following statements is correct? A) Patents are one way of preventing a monopoly. B) If pharmaceutical patents are enforced, the number of new drugs will decrease. C) Monopoly profit encourages firms to research and develop new drugs. D) Competition creates incentives for the invention of new drugs.
Monopoly profit encourages firms to research and develop new drugs.
(Figure: Monopolist 4)What is the profit-maximizing price and output level for the monopolist in this figure? A) P = $8; Q = 6 B) P = $14; Q = 6 C) P = $8; Q = 12 D) P = $10; Q = 10
P = $14; Q = 6
When a regulated monopolist maximizes consumer surplus, it produces at an optimal Q where: A) P = MC. B) MR = MC. C) D = AC. DAR = AC.
P = MC.
In a constant cost industry, P = AC = $20. Which sequence of events follows an increase in demand? A) P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits return to $0 B) P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts left, price falls until profits return to $0 C) P < AC, firms suffer an economic loss, existing firms reduce output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits exceed $0 D) P = AC, firms make no economic profit, existing firms leave output unchanged, new firms enter the industry, profits remain normal, P = AC = $20
P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits return to $0
In a monopolistically competitive market, new firms will enter the market as long as: A) P > AC. B) P = AC. C) P < AC. D) P = MC
P > AC.
Profit is positive whenever: A) P < AC. B) P < MC. C) P > MC. D) P > AC.
P > AC.
Monopolistically competitive firms are able to charge: A) P > MC, eliminating any lost gains from trade. B) P > MC, so output is produced at minimum per unit cost. C) P > MC, causing an inefficiently lower level of output. D) P = MC, maximizing social surplus.
P > MC, causing an inefficiently lower level of output.
Which of the following is always TRUE for monopolies? A) MR > D B) P > MR C) P > AC D) TR < TC
P > MR
A firm should exit an industry if: A) P < MC. B) P - AC > 0. C) P- AC < 0. D) P - AC = 0.
P- AC < 0.
(Figure: Profits and Competitive Firms) Refer to the four panels in the figure. Which panel shows a competitive firm making an economic loss? Panel A Panel B Panel C Panel D
Panel A
Imagine a technology that enabled people to sell part of the contents of their brains directly (assume that the seller does not get to keep a copy of the contents). Why might this make price discrimination for college education more difficult? A) It would be more difficult for financial aid offices to ascertain the willingness-to-pay of each student. B) Everyone would have the same elasticity of demand for college attendance. C) Everybody would panic since it would no longer be clear who knew or remembered what. D) Poor students could attend college (perhaps repeatedly) at a low cost and sell the information to wealthy students.
Poor students could attend college (perhaps repeatedly) at a low cost and sell the information to wealthy students.
Which of the following statements is TRUE about price discrimination? A) Price discrimination makes consumers worse off due to higher prices. B) Price discrimination leads to deadweight loss and therefore makes the market less efficient. C) Price-discriminating monopolists often produce more output than single-price monopolists and increase total surplus in the process. D) Price discrimination is illegal in the United States.
Price-discriminating monopolists often produce more output than single-price monopolists and increase total surplus in the process.
(Figure: Maximize Monopoly Profits) Refer to the figure. The monopolist will maximize its profit by producing at output equal to: Q1. Q2. Q3. Q4.
Q2
If women conspired together and demanded that any man wishing to take them on a date must take them to a nice restaurant, why would this be unsustainable? A) Some women will secretly allow guys to take them to cheaper restaurants. B) Some women will cheat on their boyfriends to go out to nice restaurants. C) Some men will cheat and take dates out to an even more expensive restaurant than is required. D) The government will arrest all women for conspiring against the public.
Some women will secretly allow guys to take them to cheaper restaurants.
Scientists are working on techniques to create bacteria that excrete oil as waste. How might OPEC have contributed to this research? A) OPEC donated money to fund this research. B) The high price of oil charged by OPEC made it profitable to invest in such research. C) Several members of the Saudi royal family personally worked on this research. D) OPEC is offering a prize to whoever can develop a substitute for oil.
The high price of oil charged by OPEC made it profitable to invest in such research.
Which of the following statements is TRUE? A) It is easier to establish a cartel for a manufactured good than for a natural resource. B) Cartels are more successful when there are many substitutes for the cartel's good. C) The high prices charged by a cartel might lead to new firms entering the industry, reducing the cartel's market power. D) OPEC's high oil prices encourage countries like Mexico, Great Britain, and the Netherlands to cut back on oil production.
The high prices charged by a cartel might lead to new firms entering the industry, reducing the cartel's market power.
If students in the United States go online and import the much cheaper Indian version of your textbook instead of buying the American edition, how might this arbitrage nevertheless help the publisher of your textbook? A) It makes the prices in India and the United States more equal. B) It saves money on the color ink for the graphs. C) The students who go to the trouble to do this might resell the books for the higher American price and make a profit. D) The students who go to the trouble to do this might have had low willingness-to-pay in the first place, so the arbitrage enables another layer of price discrimination.
The students who go to the trouble to do this might have had low willingness-to-pay in the first place, so the arbitrage enables another layer of price discrimination.
(Table: Constant Cost Industries)As of July 2011, oil companies had a 6.5 percent profit margin (for each dollar of sales, 6.5 cents was profit), ranking 131 (profit margin is the far right column). Other industries making the same profit margin include packaging and containers, office supplies, farm and construction, and newspapers. If these profits are typical, what does this similar profit margin across very different industries suggest about oil companies' profits? A) They are making zero profits. B) They are making above-average profits and should expect entry. C) They are making above-average profits and should expect no entry or exit. D) Nothing because it is the total profits that matter, not profits per dollar of sales.
They are making zero profits.
If the demand curve for Pfizer's Norvasc, a blood pressure medication, is more elastic in Mexico than it is in the United States, how could Pfizer use this information to maximize their profits? A) They could segment the markets and charge a lower price for Norvasc in Mexico than in the United States. B) They could segment the markets and charge a higher price for Norvasc in Mexico than in the United States. C) Since Mexico is a poorer country than the United States, in this situation it makes more sense for Pfizer to charge only one price in both countries. D) They could choose to sell Norvasc only in the United States.
They could segment the markets and charge a lower price for Norvasc in Mexico than in the United States.
How do monopolistically competitive firms inform consumers about their products? A) They rely on word-of-mouth. B) They inform consumers through advertising. C) There is no need to do such. D) Their products are well-known enough to stand on their own.
They inform consumers through advertising.
Which of the following is NOT a principle of price discrimination? A) It is more profitable to set different prices in markets with different demand curves than a single price that covers all markets. B) To maximize profit the firm should set a higher price in markets with more elastic demand. C) To maximize profit the firm should set a higher price in markets with more inelastic demand. D) Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price discrimination.
To maximize profit the firm should set a higher price in markets with more elastic demand.
Which of the following correctly defines a monopoly that arises from economies of scale? A) a single firm operating in a market B) a single firm that can supply the market at a lower cost than two or more firms C) a single firm that controls the production of a natural resource D) a single firm that produces the efficient and socially optimal quantity in a market
a single firm that can supply the market at a lower cost than two or more firms
Which of the following statements is FALSE? A) AC = TC/Q B) A firm that produces 100 units at a total cost of $500 has an average cost of $5 per unit. C) Firms will earn positive profits if price exceeds average cost. D) When marginal cost is below average cost, average cost is rising.
When marginal cost is below average cost, average cost is rising.
When demand is relatively elastic, monopolists will charge: A) a higher markup. B) a lower markup. C) the same markup as when demand is relatively inelastic. D) a price equal to marginal cost.
a lower markup.
Monopolistic competition features _____ products. A) identical B) only food, such as McDonald's and Burger King C) differentiated D) only electronic, such as Apple and Motorola
differentiated
(Table: Payoff Matrix) Refer to the table. What is Player 2's strategy in this game? A) always cooperate B) always cheat C) cooperate when Player 1 cooperates; cheat when Player 1 cheats D) cheat when Player 1 cooperates; cooperate when Player 1 cheats
always cheat
Consumers benefit from advertising: A) only when they gain information. B) if the advertising is not persuasive. C) because it leads to lower prices for some products. D) only when the advertising is being used as a signal.
because it leads to lower prices for some products.
Typical evidence for the existence of market power would be market prices: A) below production costs. B) equal to production costs. C) above production costs. D) varying with market supply and demand conditions.
above production costs.
(Table: Payoff Matrix) Refer to the table. What is Player 1's strategy in this game? A) always cooperate B) always cheat C) cooperate when Player 2 cooperates; cheat when Player 2 cheats D) cheat when Player 2 cooperates; cooperate when Player 2 cheats
always cheat
The movie The Invention of Lying takes place in a world where everyone can only tell the absolute truth. An advertisement for Coke admits there is nothing new about the product and that it's basically just brown sugar water. It ends with the tagline: "Coke. It's very famous." How is Coke using advertising in this fictional advertisement? A) as a signal B) as conveying new information C) as part of the product D) both as a signal and the conveyor of new information
as part of the product
Which of the following is an example of a good with economies of scale? A) fish oil pills sold in bulk B) laptops with Internet access C) dog grooming D) autos
autos
(Figure: Monopoly Markup ) Refer to the figure. The monopolist's price markup is: A) a - b. B) b - d. C) d. D) a - d.
b - d.
When marginal cost is rising, the average total costs: A) could be rising or falling. B) must be rising. C) must be falling. D) must be constant.
could be rising or falling.
(Table: Russia, Saudi Payoff Table) Refer to the table. The dominant strategies are to: A) cheat, for both Russia and Saudi Arabia. B) cooperate, for both Russia and Saudi Arabia. C) cheat for Russia and to cooperate for Saudi Arabia. D) cooperate for Russia and to cheat for Saudi Arabia.
cheat, for both Russia and Saudi Arabia
. A 2006 paper by Margeret Levenstein and Valerie Suslow ("What Determines Cartel Success?") found that although cheating is a common cause of why cartels broke down, the following causes are even more common: entering firms, the nature of the demand curve, growth of the industry, and difficulty of bargaining between conspirators. What other cause is also associated with bargaining difficulties? A) cheating B) exiting firms C) the nature of the industry D) the nature of the supply curve
cheating
In a cartel, the most profitable outcome is achieved by: A) cheating when others cooperate. B) cheating when others cheat. C) cooperating when others cooperate. D) cooperating when others cheat.
cheating when others cooperate.
If anything, a cartel is likely to ________ and ________ power over time. A) strengthen; gain B) collapse; lose C) go bankrupt; then reorganize under bankruptcy law and gain D) operate in competitive markets; price discriminate to gain
collapse; lose
The milk industry in the United States: A) consists of government-controlled cartels that raise the price of milk and punish any seller who violates the cartel. B) is currently in violation of antitrust laws, according to the President's legal staff. C) shows how competition from new rivals can reduce the power of cartels. D) was exposed by the FBI for conspiring to raise prices.
consists of government-controlled cartels that raise the price of milk and punish any seller who violates the cartel.
When the level of production is relatively low, the average cost per unit of output would ________ if output increased. A) increase B) decrease C) either increase or decrease depending on marginal cost D) remain constant
decrease
(Figure: Demand 1) A cartel facing the market in this diagram would try to cause industry output to: A) increase from 5 to 10. B) increase from 3 to 6. C) decrease from 6 to 3. D) decrease from 5 to 2.
decrease from 6 to 3.
(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistic competitive market. In the long run you would expect prices in this market to: A) stay the same. B) increase as unprofitable firms leave the industry. C) decrease to the point that P = AC. D) decrease to the point that P = MC.
decrease to the point that P = AC.
As more firms enter a monopolistically competitive market, the market demand curve: A) increases, shifts to the right. B) stays the same. C) decreases, shifts to the left. D) It will vary greatly depending on the industry.
decreases, shifts to the left.
Monopolies will have more market power when one firm owns an input that is difficult to duplicate and the: A) demand for the product is elastic. B) demand for the product is inelastic. C) supply of the product is elastic. D) supply of the product is inelastic.
demand for the product is inelastic
(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistic competitive market. In this market, in the long run you would expect: A) both demand and price to stay the same. B) both demand and price to increase as unprofitable firms leave the industry. C) demand to decrease and price to fall to the point that P = AC. D) demand to shift left and decrease price to the point that P = MC.
demand to decrease and price to fall to the point that P = AC.
The more a firm knows about ________ the easier it is for the firm to ________. A) competitors; advertise B) costs; sell its goods C) supply; price discriminate D) demand; price discriminate
demand; price discriminate
Bundling and tying are: A) essentially the same practices. B) different forms of price discrimination. C) often done at the same time. D) considered illegal in many countries.
different forms of price discrimination.
A sales manager at a car dealership revealed that he considers how much the customer appears to know about the car when he's negotiating a price. Ignorant people tend to pay a premium on their car. Price discrimination explains this "ignorance premium" since people who: A) don't bother to research probably don't want a car that much. B) do research probably know that gas is very expensive and thus require a cheaper car. C) don't bother to research are probably less sensitive to price. D) do research are probably wealthier and thus less sensitive to price.
don't bother to research are probably less sensitive to price.
The demand curve for oil from OPEC is: A) flat. B) vertical. C) upward-sloping. D) downward-sloping.
downward-sloping.
Under steady state monopolistic competition firms face ______ demand and earn ______ economic profits on average. A) downward-sloping; zero B) downward-sloping; positive C) perfectly-elastic; zero D) perfectly-elastic; positive
downward-sloping; zero
(Table Decision to Enter) Use the table. A firm is considering whether to enter an industry, with the conditions upon entry set forth in the table. Entering the industry would require the firm to pay $800 per day in fixed costs. This firm should ________ the industry because its profits would be ________ per day. A) not enter; -$1,350 B) not enter; -$800 C) enter; $700 D) enter; $150
enter; $150
When all members of a cartel cheat, the cartel: A) earns monopoly profits. B) fails to earn monopoly profits. C) cannot profit. D) may or may not earn monopoly profits.
fails to earn monopoly profits.
Which of the following does NOT practice price discrimination on a regular basis? A) universities B) farmers C) movie theaters D) airline companies
farmers
Suppose there is a large and permanent increase in the demand for a good produced in a competitive industry. We should expect that: A) existing firms will face lower sunk costs. B) competition in the industry will decrease. C) existing firms' average cost curves will shift upward. D) firms will enter the industry because the market price will rise.
firms will enter the industry because the market price will rise
California's electricity crisis as illustrated in the chapter is partially explained by the fact that generators of electric power: A) gain market power when demand increases. B) gain market power when supply increases. C) gain market power when demand decreases. D) lose market power when demand increases.
gain market power when demand increases.
Price discrimination may be: A) good in industries with high fixed costs. B) good in industries with high marginal costs. C) less efficient if the number of consumers in the market is low. D) less efficient if it leads to higher prices.
good in industries with high fixed costs.
Monopolistically competitive firms set price: A) less than marginal cost. B) equal to marginal cost. C) greater than marginal cost. D) sometimes greater than, sometimes less than, and sometimes equal to marginal cost.
greater than marginal cost.
Firms that expect their products to be successful: A) have more of an incentive to advertise. B) have less of an incentive to advertise. C) will only participate in price advertising. D) can better signal the quality of their product if they do NOT advertise.
have more of an incentive to advertise.
Firms that expect their products to be successful: A) have more of an incentive to advertise. B) have less of an incentive to advertise. C) will only participate in price advertising. D) can better signal the quality of their product if they do not advertise.
have more of an incentive to advertise.
To maximize profit the monopolist should set a: A) lower price in markets with less elastic demand. B) lower price in markets with more inelastic demand. C) higher price in markets with more elastic demand. D) higher price in markets with more inelastic demand.
higher price in markets with more inelastic demand.
Deregulation of cable TV rates led to: A) lower prices and better service. B) higher prices, more stations, and better quality programming. C)lower prices, fewer stations, and lower quality programming. D) the proliferation of amateur programming.
higher prices, more stations, and better quality programming.
A firm with monopoly power is able to set a markup price that is: A) lower than prices on similar goods sold by competitive firms. B) the same as the prices on similar goods sold by competitive firms. C) higher than prices on similar goods sold by competitive firms. D) the maximum price all market participants will pay for similar goods.
higher than prices on similar goods sold by competitive firms.
Monopolistic competitive products are usually _____ advertised. A) never B) rarely C) occasionally D) highly
highly
In the prisoner's dilemma, the dominant strategy is: A) in the best interest of the players in the game. B) in the least interest of the players in the game. C) a moderate outcome for the players in the game. D) not a possible outcome in the game.
in the least interest of the players in the game.
Barriers to entry are factors that: A) decrease costs to new firms entering the market. B) increase costs to new firms entering the market. C) increase costs to existing firms in the market. D) decrease costs to existing firms in the market.
increase costs to new firms entering the market.
(Table: Market for Oil) Refer to the table. Suppose that these countries form a cartel and each country produces 8 MBD. If one of the cartel members cheats by secretly pushing its production back to 10 MBD rather than 8, total revenue for the cheating country would: A) increase from $360 million to $500 million a day. B) increase from $400 million to $475 million a day. C) decrease from $380 million to $360 million a day. D) remain unchanged at $400 million a day.
increase from $400 million to $475 million a day.
(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. Suppose that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What would Country B's reaction be? A) lower its own quantity to 200 units B) increase its own quantity to 1,600 units C) increase the market price to $60 D) increase its own quantity to 600 units
increase its own quantity to 600 units
Loyalty programs, such as frequent flyer plans, tend to: A) increase prices. B) decrease prices. C) decrease monopoly power of the firm. D) make demand more elastic.
increase prices.
States allowing firms in certain industries to advertise prices, a form of ______, has been found to ______. A) signaling; decrease prices B) informative advertising; increase prices C) informative advertising; decrease prices D) signaling; increase prices
informative advertising; decrease prices
On Black Fridays, most retail outlets have major storewide sales. Yet, as one of the busiest shopping days in the United States, one would expect prices to increase, not decrease. Price discrimination explains the answer to this question because price: A) sensitive shoppers are more likely to notice tying and bundling tricks. B) sensitive shoppers are more likely to want to stay away from Black Friday. C) insensitive shoppers will stay away to avoid the crowds. D) insensitive shoppers tend to wait until the last minute for Christmas shopping.
insensitive shoppers will stay away to avoid the crowds.
When opportunity cost is positive, economic profit ______ accounting profit. A) is greater than B) is less than C) equals D) eliminates
is less than
(Table: Profit-Maximizing Monopolist) Refer to the table. When this monopolist is producing 9 units,: A) its marginal cost is below the marginal revenue level. B) its average revenue is greater than the price it receives for the product. C) it could increase its profit by raising the price and selling fewer units. D) it is producing at the socially optimal level.
it could increase its profit by raising the price and selling fewer units
The Sherman Antitrust Act of 1890: A) limits cartel-like behavior in the United States. B) serves to limit anticompetitive behavior by foreign firms that the U.S. trades with. C) has illegalized all cartels in the United States. D) All of the answers are correct.
limits cartel-like behavior in the United States.
(Figure: Monopolistic Competition II)The monopolistically competitive firm in this diagram is in ______ equilibrium and charging a price of ______. A) long-run; $14 B) short-run; $8 C) short-run; $11 D) long-run; $8
long-run; $14
Oligopolies tend to set prices: A) higher than monopolies. B) higher than cartels. C) lower than monopolies but higher than competitive markets. D) that equal marginal cost.
lower than monopolies but higher than competitive markets.
Firms operating in a cartel have a large incentive to cheat on the agreement by: A) lowering prices and increasing production. B) lowering both prices and production. C) raising prices and increasing production. D) raising prices and lowering production.
lowering prices and increasing production.
Monopolistic competition in a market is characterized by: A) many firms, downward-sloping demand curves, and zero economic profit in the long run. B) several dominant firms, perfectly elastic demand curves, and above-normal profits. C) many firms, perfectly elastic demand curves, and zero economic profit in the long run. D) several firms, inelastic demand curves, and long-run monopoly profit.
many firms, downward-sloping demand curves, and zero economic profit in the long run.
As the price of a good fluctuates, a profit-maximizing firm will expand or contract production along its: A) average cost curve. B) average product curve. C) marginal cost curve. D) marginal product curve.
marginal cost curve.
A perfectly price-discriminating monopoly causes: A) no social surplus. B) maximum social surplus. C) as much social surplus as in the case of a standard monopoly. D) as much social surplus as in the case of monopolistic competition.
maximum social surplus.
In the short run, if price is less than average cost, a firm: A) will certainly shut down. B) might shut down, but might stay open. C) is earning positive profits. D) is earning normal profits.
might shut down, but might stay open.
A market with many firms, a differentiated product, and little to no barriers to entry is a _____ market. A) perfect competition B) monopolistic competition C) oligopoly D) monopoly
monopolistic competition
(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistically competitive market. In the long run you would expect: A) prices to increase. B) demand to become more inelastic. C) less quality and innovation. D) more firms to enter the market.
more firms to enter the market
Cheaters in cartels make ________ profit when the other cartel members ________ their promise. A) more; break B) less; keep C) zero; break D) more; keep
more; keep
When cartels are successful at driving up prices,: A) production of substitute goods will decrease. B) new firms will begin to enter the market. C) competition among firms will decrease. D) cheating will be eliminated.
new firms will begin to enter the market.
Generating electricity: A) no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly. B) requires a natural monopoly, along with the transmission and distribution of electricity. C) requires a natural monopoly but not the transmission and distribution of electricity. D) and the transmission and distribution of electricity are no longer natural monopolies.
no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly
A monopolistic competitive firm is able to charge P > MC because: A) they clearly have a superior product than their competitors. B) of product differentiation, some people will prefer their product. C) of high barriers to entry into the industry. D) monopolistic competitive firms must not set prices above P = MC.
of product differentiation, some people will prefer their product.
Monopolistic competition combines features of: A) oligopolies and monopolies. B) perfect competition and monopolies. C) elastic and inelastic goods. D) shortages and surpluses
perfect competition and monopolies.
Charging each customer his or her maximum willingness to pay is: A) unethical. B) perfect price discrimination. C) not a profit-maximizing strategy. D) impossible in practice.
perfect price discrimination.
Advertising designed to link fond lifetime memories with the use of a product is a form of: A) informative advertising that is designed to reduce market power. B) informative advertising that is designed to increase market power. C) differentiated advertising that tries to reduce consumer surplus. D) persuasive advertising that may actually increase consumer well-being.
persuasive advertising that may actually increase consumer well-being.
Monopolistically competitive firms earn zero profits on average because: A) they price above marginal cost. B) new firms cannot enter the market. C) positive profits cause competitors to enter the market, decreasing demand for each individual firm. D) they price at marginal cost
positive profits cause competitors to enter the market, decreasing demand for each individual firm.
Firms should exit the market if: A) sunk costs are a significant portion of the total cost. B) producer surplus is just equivalent to recoverable costs. C) price falls below the average cost. D) marginal cost exceeds the average cost
price falls below the average cost.
Within OPEC, cheating is associated with: A) holding oil reserves without reaching quota. B) meeting quota. C) zero production. D) producing oil beyond quota.
producing oil beyond quota.
One would expect more arbitrage to occur between two markets if: A) the products are differentiated in terms of their fundamental characteristics. B) the products have built-in tracking mechanisms that enable the discovery of the distributors. C) the demand curves in the two markets are essentially the same. D) products are non-differentiated and the different markets have good transportation networks between them.
products are non-differentiated and the different markets have good transportation networks between them
(Figure: Profit Maximization 6) At any price above $60 in this diagram, firms already in this market will be making an economic: A) profit (P > AC), causing other firms to enter the industry in the long run. B) loss (P < AC) and will exit the industry in the short run. C) profit (P > AC), causing other firms to enter the industry in the short run. D) loss (P < AC) and will exit the industry in the long run.
profit (P > AC), causing other firms to enter the industry in the long run.
Which of the following is an example of price discrimination through tying? A) combo meals at fast food restaurants B) Barbie and Ken dolls C) razors and blades D) lights and light bulbs
razors and blades
A cartel is a group of suppliers who act together in order to: A) increase demand, raise prices, and increase profits. B) increase supply, reduce prices, and increase profits. C) increase demand, reduce prices, and increase profits. D) reduce supply, increase prices, and increase profits.
reduce supply, increase prices, and increase profits.
Which of the following is the best example of a monopolistic competitive market? A) diamonds B) produce C) restaurants D) milk
restaurants
If a monopolistically competitive firm raises prices, it will: A) sell no output. B) continue to sell the same amount of output. C) go out of business. D) sell less output.
sell less output.
Suppose there are two types of cable TV viewers. The first type places a high value on sports channels (e.g., ESPN, Fox Sports, and The Golf Channel) and a low value on all other channels. The second type places a high value on music channels (VH1, MTV3, and CMT) and a low value on all other channels. In this case, we would expect cable operators to: A) sell sports and music channels in one bundle to both types of viewers. B) sell only sports channels to the first type of viewers and sell only music channels to the second type of viewers. C) use "à la carte" pricing. D) use fixed-cost pricing.
sell sports and music channels in one bundle to both types of viewers.
Which of the following is an example of price discrimination? A) value meals at fast-food restaurants B) senior citizen discounts C) tax-exempt status for nonprofit organizations D) holiday sales at retail stores
senior citizen discounts
As more firms enter a monopolistically competitive market, the individual firm's demand curve: A) increases, shifts to the right. B) stays the same. C) decreases, shifts to the left. D) It will vary greatly depending on the industry
stays the same.
If a monopolist begins to perfectly price discriminate,: A) the deadweight loss will be eliminated as output expands to its efficient level. B) consumer surplus will expand as prices fall. C) the deadweight loss will increase as there are now more lost gains from trade. D) consumer surplus is eliminated and the deadweight loss is maximized.
the deadweight loss will be eliminated as output expands to its efficient level.
(Figure: Industry Firms) Use the figures. The market for a normal good is characterized by demand curve D2 and supply curve S2. A decrease in income will cause: A) the demand curve to shift D1 causing firms to earn economic profits. The supply curve will not change, so price will rise and firms will earn normal profits. B) the supply curve to shift D1 causing firms to earn economic profits. The supply curve will decrease to S1 as firms exit the industry. Eventually the market price will rise and firms will earn above-normal profits. C) the demand curve to shift D1 causing firms to earn economic losses. The supply curve will decrease to S1 as firms exit the industry. Eventually the market price will rise and firms will earn normal profits. D) the supply curve to shift S1 causing firms to earn economic losses. The demand curve will decrease to D1 as firms enter the industry. Eventually the market price will fall and firms will earn normal profits.
the demand curve to shift D1 causing firms to earn economic losses. The supply curve will decrease to S1 as firms exit the industry. Eventually the market price will rise and firms will earn normal profits.
There was a dramatic increase in the price of oil in: A) the early 1970s. B) the early 1980s. C) the early 1990s. D) the late 1990s.
the early 1970s.
When an advertisement serves as a signaling device, it provides potential customers with: A) the idea that the product is expected to be very popular for a long time. B) information on price. C) information on quality. D) information on availability.
the idea that the product is expected to be very popular for a long time.
If a monopolist is able to perfectly price discriminate, then: A) they will be able to charge every consumer a price equal to their marginal cost of production. B) arbitrage will not exist. C) prices will fall for those individuals with very inelastic demands. D) there will be zero deadweight loss to society.
there will be zero deadweight loss to society.
To maximize profit, the monopolist increases output: A) until it is using full manufacturing capacity. B) until marginal cost is equal to marginal revenue. C) to the same amount it would produce if the firm was competitive, but maximizes price. D) as long as the marginal revenue curve is higher than the demand curve.
until marginal cost is equal to marginal revenue
A monopoly is able to increase the markup of price over marginal cost: A) when the demand is more price-elastic. B) when the demand is less price-elastic. C) when there is more marginal revenue per unit sold. D) at will regardless of price-elasticity.
when the demand is less price-elastic.
When demand is inelastic, revenues increase and production costs decrease as the quantity produced declines, total profits will always increase with a higher price. Therefore, monopolists: A) can't exist. B) can't exist for industries in which demand is relatively inelastic. C) can't maximize profits if they face a relatively inelastic demand. D) will always raise their price until they get to an elastic portion of the demand curve.
will always raise their price until they get to an elastic portion of the demand curve
When comparing a monopoly with a competitive industry, monopoly quantity: A) and monopoly price will be lower than that of a competitive firm. B) will be higher, and monopoly price will be lower, than that of a competitive firm. C) will be lower, and monopoly price will be higher, than that of a competitive firm. D) and monopoly price will be higher than that of a competitive firm.
will be lower, and monopoly price will be higher, than that of a competitive firm.
In the case of a perfectly price-discriminating monopolist, the demand curve lies: A) above the marginal revenue curve. B) below the marginal revenue curve. C) with the marginal revenue curve. D) tangent to the marginal revenue curve at the equilibrium point.
with the marginal revenue curve.
Programs such as Steam distribute more and more video games. Purchasers buy the game and download it immediately to their computer. If the entire system is automated, estimate the marginal cost of producing and selling video games this way (ignore electricity costs). A) zero B) the price of the game C) proportional to the cost to make the game D) None of the answers is correct.
zero
In the case of a perfectly price-discriminating monopoly, there is : A) zero consumer surplus. B) as much consumer surplus as in the case of perfect competition. C) as much consumer surplus as in the case of a standard monopoly. D) as much consumer surplus as in the case of monopolistic competition.
zero consumer surplus.
In a stable, monopolistically competitive market for restaurants there are: A) zero profits on average, and consumers are indifferent about where they eat. B) zero profits on average, and consumers have strong preferences about where they eat. C) positive profits on average, and consumers are indifferent about where they eat. D) positive profits on average, and consumers have strong preferences about where they eat.
zero profits on average, and consumers have strong preferences about where they eat.
