ECON 411 Chapter 8 Practice #2

*A monopolistic firm* A) will never sell a product whose demand is inelastic at the quantity sold. B) can sell as much as it wants for any price it determines in the market. C) cannot determine the price, which is determined by consumer demand. D) cannot sell additional quantity unless it raises the price on each unit E) will always earn a profit in the long run.

A) will never sell a product whose demand is inelastic at the quantity sold.

*International trade based on external scale economies in both countries is likely to be carried out by* A) a relatively large number of price competing firms. B) a relatively small number of price competing firms. C) a relatively small number of imperfect competitors. D) monopolists in each country. E) a large number of oligopolists in each country.

A) a relatively large number of price competing firms.

*We often observe "pseudo-intra-industry trade" between the United States and Mexico. Actually, such trade is consistent with* A) comparative advantage associated with Heckscher-Ohlin model. B) oligopolistic markets. C) optimal tariff issues. D) the Ricardian model of trade. E) the specific factors model of trade.

A) comparative advantage associated with Heckscher-Ohlin model.

*A product is produced in a monopolistically competitive industry with scale economies. If this industry exists in two countries, and these two countries engage in trade with each other, then we would expect* A) each country will export different varieties of the product to the other. B) the country in which the price of the product is lower will export the product. C) the country with a relative abundance of the factor of production in which production of the product is intensive will export this product. D) neither country will export this product since there is no comparative advantage. E) the countries will trade only with other nations they are not in competition with.

A) each country will export different varieties of the product to the other.

*Firms that produce ________ products must be ________ competitive.* A) differentiated; perfectly B) differentiated; imperfectly C) standardized; imperfectly D) standardized; perfectly E) exported; imperfectly

B) differentiated; imperfectly

*An industry is characterized by scale economies and exists in two countries. In order for consumers of its products to enjoy both lower prices and more variety of choice* A) the marginal cost of this industry must equal marginal revenue in the other. B) each country's marginal cost must equal that of the other country. C) the two countries must engage in international trade with each other. D) the monopoly must lower prices in order to sell more. E) they must combine to become a multinational corporation.

C) the two countries must engage in international trade with each other.

*Modeling trade in imperfectly competitive industries is problematic because* A) it is difficult to find an imperfectly competitive firm in the real world. B) there are no models of imperfectly competitive behavior. C) there is no single generally accepted model of behavior by imperfectly competitive firms. D) collusion among imperfectly competitive firms makes usable data rare. E) there is only a single model of imperfect competition (monopoly) but imperfect competition can take many forms in the real world.

C) there is no single generally accepted model of behavior by imperfectly competitive firms.

An imperfectly competitive firm has the following total cost curve: C = 100 + 4Q. *What is average total cost equal to when Q = 10?*

C/Q = [100 + (4)(10)]/10 = *14*

*Under the model of monopolistic competition, a(an) ________ in the number of firms in the industry will cause ________ to ________.* A) decrease; markup; decrease B) increase; average price; increase C) increase; average cost; decrease D) increase; markup; decrease E) increase; marginal cost; decrease

D) increase; markup; decrease

*Trade without serious income distribution effects is most likely to happen* A) in sophisticated manufactures trade between rich countries. B) in simple manufactures trade between developing countries. C) in sophisticated manufactures trade between rich and poor countries. D) in agricultural trade between rich countries. E) in labor-intensive industries like clothing.

A) in sophisticated manufactures trade between rich countries.

*Under the model of monopolistic competition, a(an) ________ in the number of firms in the industry will cause ________ to ________.* A) increase; average price; decrease B) increase; average price; increase C) increase; average cost; decrease D) decrease; markup; decrease E) increase; marginal cost; decrease

A) increase; average price; decrease

*Two countries engaged in trade in products with no scale economies, produced under conditions of perfect competition, are likely to be engaged in* A) inter-industry trade. B) monopolistic competition. C) intra-industry trade. D) Heckscher-Ohlin trade. E) oligopolistic competition

A) inter-industry trade.

*Under oligopoly, firms' pricing policies are ________ and, under monopolistic competition, they are ________.* A) interdependent; independent B) independent; interdependent C) cooperative; uncooperative D) uncooperative; cooperative E) profit maximizing; revenue maximizing

A) interdependent; independent

*Two countries engaged in trade in products with scale economies, produced under conditions of monopolistic competition, are likely to be engaged in* A) intra-industry trade. B) price competition. C) inter-industry trade. D) Heckscher-Ohlinean trade. E) immiserizing trade.

A) intra-industry trade.

*When a country both exports and imports a type of commodity, the country is engaged in* A) intra-industry trade. B) increasing returns to scale. C) imperfect competition. D) inter-industry trade. E) an attempt to monopolize the relevant industry.

A) intra-industry trade.

*If the market for products produced by firms in a monopolistically competitive industry becomes ________, then there will be ________ firms and each firm will produce ________ output and charge a ________ price.* A) larger; more; more; lower B) larger; fewer; more; lower C) larger; fewer; more; higher D) larger; more; more; higher E) larger; more; less; higher

A) larger; more; more; lower

*If a firm increases its output in the ________ and unit costs ________, then the firm is experiencing ________ of scale.* A) long-run; increase; diseconomies B) short-run; decrease; economies C) long-run; decrease; diseconomies D) short-run; decrease; diseconomies E) long-run; increase; economies

A) long-run; increase; diseconomies

*If a firm that uses a production process that yields economies of scale charges a price equal to ________, then profit will be ________. * A) marginal cost; negative B) marginal revenue; maximized C) marginal cost; maximized D) marginal revenue; positive E) marginal cost; positive

A) marginal cost; negative

*International trade based solely on internal scale economies in both countries is likely to be carried out by* A) monopolists in each country. B) a relatively large number of price competing firms. C) a relatively small number of price competing firms. D) a relatively small number of imperfect competitors. E) a large number of oligopolists in each country.

A) monopolists in each country.

*Intra-industry trade is most common in the trade patterns of* A) the industrial countries of Western Europe. B) the developing countries of Asia and Africa. C) raw material producers. D) China with the rest of the world. E) labor-intensive products.

A) the industrial countries of Western Europe.

*An industry is characterized by scale economies, and exists in two countries. Should these two countries engage in trade such that the combined market is supplied by one country's industry, then* A) consumers in both countries would have higher prices and fewer varieties. B) consumers in both countries would have more varieties and lower prices. C) consumers in the importing country only would have higher prices and fewer varieties. D) consumers in the exporting country only would have higher prices and fewer varieties. E) consumers in both countries would have fewer varieties at lower prices.

B) consumers in both countries would have more varieties and lower prices.

An imperfectly competitive firm has the following total cost curve: C = 100 + 4Q. *What is total cost equal to when Q = 10?*

C = 100 + (4)(10) = *140*

*The simultaneous export and import of widgets by the United States is an example of* A) inter-industry trade. B) increasing returns to scale. C) imperfect competition. D) intra-industry trade. E) the effect of a monopoly on international trade.

C) imperfect competition.

*A monopoly firm will maximize profits by producing where* A) marginal revenue is higher in foreign markets. B) prices are the same in domestic and foreign markets. C) marginal revenue is the same in domestic and foreign markets. D) marginal revenue is higher in the domestic market. E) total revenue from domestic and foreign sales is maximized.

C) marginal revenue is the same in domestic and foreign markets.

*If a firm increases its output in the ________ and unit costs ________, then the firm is experiencing ________ of scale.* A) short-run; decrease; diseconomies B) short-run; decrease; economies C) long-run; decrease; diseconomies D) long-run; decrease; economies E) long-run; increase; economies

D) long-run; decrease; economies

*Monopolistic competition is associated with* A) high-profit margins in the long run. B) price-taking behavior. C) explicit consideration at the firm level of the strategic impact of other firms' pricing decisions. D) product differentiation. E) increasing returns to scale.

D) product differentiation.

*Intra-industry trade will tend to dominate trade flows when which of the following exists?* A) constant cost industries B) large differences between relative country factor availabilities C) homogeneous products that cannot be differentiated D) small differences between relative country factor availabilities E) uneven distribution of abundant resources between two countries

D) small differences between relative country factor availabilities

*A monopoly firm engaged in international trade will* A) equate marginal costs with the relative world prices B) equate average to local costs. C) equate marginal costs with foreign marginal revenues. D) equate marginal costs with the highest price the market will bear. E) equate marginal costs with marginal revenues in both domestic and foreign markets.

E) equate marginal costs with marginal revenues in both domestic and foreign markets.

*If there are a large number of firms in a monopolistically competitive industry* A) there will be a small number of firms that are very large and the rest will be very small. B) the country in which the firms are located can be expected to export the goods they produce. C) there will be barriers to entry that prevent addition firms from entering the industry. D) the firms will converge production on a standardized product. E) long-run profit will be equal to zero.

E) long-run profit will be equal to zero.

*Imperfectly competitive firms have a demand curve that ________ and a marginal revenue curve that ________ and is ________ the demand curve.* A) slopes downward; slopes downward; the same as B) is horizontal; is horizontal; the same as C) slopes downward; is horizontal; above D) is horizontal; slopes downward; below E) slopes downward; slopes downward; below

E) slopes downward; slopes downward; below

*A firm in long-run equilibrium under monopolistic competition will earn* A) positive economic profit if it engages in international trade. B) positive monopoly profits because each sells a differentiated product. C) positive oligopoly profits because each firm sells a differentiated product. D) negative economic profits because it has economies of scale. E) zero economic profits because of free entry.

E) zero economic profits because of free entry.

An imperfectly competitive firm has the following total cost curve: C = 100 + 4Q. *What is average fixed cost equal to when Q = 10?*

F/Q = 100/10 = *10*

An imperfectly competitive firm has the following total cost curve: C = 100 + 4Q. *What is marginal cost equal to when Q = 10?*

MC = *4* for any Q

*It is possible that trade based on external scale economies may leave a country worse off than it would have been without trade. Explain how this could happen.*

One answer is that the terms of trade effects may dominate any other factors.

An imperfectly competitive firm has the following demand curve: Q = 100 - 2P. *What is marginal revenue equal to when P = 40?*

Q = 20, so MR = 40 - (20/2) = *30*

An imperfectly competitive firm has the following demand curve: Q = 100 - 2P. *What is marginal revenue equal to when P = 30?*

Q = 40, so MR = 30 - (40/2) = *10*