ECON EXAM #3

One possible solution to improve performance of regulated firms is which of the following?

Allow a higher rate of return for better performance.

Why would we be likely to observe dentists engaging in price discrimination?

It is nearly impossible to resell the services of a dentist.

If the production of a good generates a detrimental externality, then at the level of production of the good under perfect competition,

MPC < MSC.

All four market forms discussed in the text maximize profit by choosing the level of output where:

MR = MC

Which of the following is not true of monopolists?

Monopolists can charge any price they want and make a profit.

A resource's earnings are all economic rent when the resource has no alternative uses

True

Interest is a payment for deferred

consumption

If you hold a bond at a time when market interest rates are increasing, you will find that the bond's value will

declined because you will receive a lower price if you sell the bond

The opportunity cost of producing capital is

decreased current production of consumption goods

The monopolistically competitive firm differs from monopoly in that its:

demand curve is more elastic.

When consumption of a good or service produces benefits or costs that are not reflected in the market price for the good, this is known as a(n)

externality

It is harder to explain the behavior of firms in oligopoly than in other market structures because in oligopoly,

firms base their decisions on what their rivals do

The analysis of oligopolistic behavior is difficult because

firms in oligopolistic industries react to each other's behavior in many ways

The unprecedented increase in living standards in the industrialized countries over the last two centuries

growth in labor productivity

If a firm¦s average cost is declining, setting price equal to marginal cost will:

guarantee that the firm will lose money

Natural monopolies are firms that

have a downward-sloping long-run average cost curve over the entire range of market demand

Which of the following characteristics of perfect competition does not apply in monopolistic competition?

homogeneous products

Excess capacity typically occurs

in long-run equilibrium in monopolistic competition

For a monopolist, if marginal revenue is $40, total revenue is

increasing

A profit-maximizing monopolist never produces along the ________ portion of the demand curve because marginal revenue is ________ there.

inelastic; negative

Which of the following characteristics distinguishes oligopoly from other market structures?

interdependence among firms in the industry

The marginal revenue curve for a monopolist

is always below its demand curve if the demand curve is downward sloping.

If a firm is a natural monopoly, its

long-run average costs decline over the full range of market demand

If a firm's demand curve slopes downward, the firm's

marginal revenue will generally be less than price

The ability of a firm to set a price greater than the competitive price is called

market power

The excess capacity theorem implies that:

monopolistic competition wastes some of society's resources but the elimination of this waste does not necessarily benefit consumers

Without government intervention, public goods would

not be provided.

A natural monopoly is defined as an industry in which

one firm can produce the entire industry output at a lower average cost than a larger number of firms could.

Which of the following taxes tend to make income distribution in the United States more equal?

personal income taxes

Many detrimental externalities occur because:

persons do not pay the full social cost of using a resource

Students in a class are assigned to work in groups on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a group, the grade is a:

public good.

Monopolistic competition is similar to

pure monopoly, in that firms face downward-sloping demand curves, and similar to perfect competition, in that long-run economic profit is zero

Prices serve the public interest by

rationing scarce resources

Regulating an industry to remove all economic profit

removes all incentive for efficiency and responsiveness to consumer demand

The market interest rate

represents the opportunity cost of investing with either borrowed funds or savings

Suppose that firms in a monopolistically competitive industry are earning short-run economic profits. In the long run, the demand curve facing each individual firm can be expected to

shift to the left and become flatter

A good is most likely to be inefficiently priced if:

some of the resources used in its production are free.

The essence of the trade-off between equality and efficiency is that:

taxes and transfers reduce incentives to earn income, thus reducing GNP.

Which act of Congress declared tying contracts, exclusive dealing, and price discrimination illegal?

the Clayton Act

The Clayton Act and FTC Act were passed because:

the Sherman Act did not provide adequate protection from restrictive business practices.

The first antitrust law passed in the United States was

the Sherman Act of 1890.

In an oligopoly, the demand curve facing an individual firm depends upon

the behavior of competing firms

If a regulator sets the price equal to the natural monopolist's marginal cost

the monopoly will experience a loss

Economic rent is defined as

the payment to a resource in excess of its opportunity cost

A main cause of the cost disease of personal services is

the unevenness in growth in productivity in the economy.

Under monopoly

too small a share of society's resources is used to produce the monopolized commodity.

The observed increase in the salaries of teachers and policemen has been primarily because

wages in the private sector for people with comparable skills rose.

If a monopolist is forced to set price equal to average total cost, economic profit

will be zero

Imposing a price ceiling on a Monopolist that still allows the monopolist to make a small profit will:

will cause the monopolist to increase output

Firms that engage in price discrimination:

will earn more profit than those that do not discriminate.

Monopolistic competitors and perfect competitors are alike in:

zero economic profit in the long run.

Which of the following characteristics does perfect competition share with the monopolistic competition?

zero long-run economic profit

If you will receive $5,000 two years from today, what is its present value if the discount rate is 5 percent?

$4,535

The distribution of income in the United States

became significantly more unequal during the 1980s

The principal advantage of the game theory approach is that it allows us to

better understand decision making when one persons choices affect another persons choices

For a monopolist that does not price discriminate, P < MR at all quantities.

False

Public policy can help achieve more efficient use of an economy's resources by eliminating

False

If the firms in a monopolistically competitive industry are earning short-run profit, which of the

Firms will continue to earn profit

A monopolist can sell 10 wangdoodles per day if he charges $10 per wangdoodle and 11 wangdoodles if he charges $9. The MR from selling the 11th wangdoodle is

-$1.

Cartels are relatively rare because:

1. They are illegal in some countries, including the United States. 2. Members find it difficult to agree on key decisions. 3. Members frequently have an incentive to cheat on the cartel.

Prices are useful in coordinating society's economic planning because

1. They convey information about which goods are scarce and which are plentiful. 2. Economies based on price systems are more flexible than centrally planned economies. 3. Economies based on price systems are more likely than centrally planned economies to minimize the cost of producing society's output

Roughly what percentage of Americans were officially considered poor (i.e. below the poverty line) in 1997/98?

13 percent

If the electric company is only allowed by regulators to earn a normal profit, it will produce at the point where

P = AC

Which of the following will occur if a natural monopoly is broken into two smaller firms?

Production costs will increase.

Deregulation of the airline and trucking industry has

Resulted in considerable entry of new firms, Has forced unions in these industries to make large concessions on wages and working conditions

A monopolist maximizes total revenue at the quantity where marginal revenue equals zero.

TRUE

Cartels are inherently unstable.

TRUE

In order to sell an additional unit of its product, a monopolist that does not price discriminate must decrease price on all units.

TRUE