Econ final
Contestable market
A ____________ is an imperfectly competitive situation that is subject to entry.
Superior to domestic opportunities
A country will not trade unless the terms of trade are
Unless barriers to entry exist
A firm cannot maintain above-normal profits over the long run
Have many competitors
A major difference between oligopoly and monopolistic competition is that monopolistically competitive firms and oligopolies do not
Inelastic portion
A monopolist that does *not* practice discrimination should never produce in the ________ if it's demand curve because it can increase total revenue and reduce total costs by increasing the price
MC is greater than MR
A monopolist will *not* use marginal cost pricing because at that output
Below; steeper
A monopolist will find that it's marginal revenue curve lies ______ it's demand curve and is ______ than its demand curve.
Brand loyalty
A monopolistically competitive firm can raise its price somewhat without fear of great change in unit sales because of
The presence of many close substitutes for its product
A monopoly can have a high degree of market power because of all *but*
Reducing production and pushing prices up
A monopoly realizes larger profits than a comparable competitive market by
MR = MC and determines prices based on the demand curve
A profit-maximizing monopolist produces the rate of output where
Cars, computers, and auto parts
According to the text, which of the following are both imports and exports for the United States? -cars, computers, and auto parts. -baseballs, computers, and cars. -computers, oil, and auto parts. -no single product can be both an import and an export for a given country.
Large firms
According to the text, one argument in favor of concentration of market power is that_______ can sometimes produce more efficiently than small firms because of economies of scale in production.
Cars, cigarettes, corn, farm equipment, and education
According to the text, which of the following does the United States export? -cars and cigarettes but not corn. -lumber but not farm equipment. -cars, cigarettes, corn, farm equipment, and education. -cars, cigarettes, corn, and farm equipment, but not education.
The dumping of products
After joining the European Union, which of the following has *not* occurred for member nations? -enhanced intercountry mobility of workers and capital. -an elimination of trade barriers. -the dumping of products. -use of a common currency for many of the countries.
Zero economic profit
All of the following are examples of nonprice competition *except* -better service. -advertising. -improved quality. -zero economic profit.
The ability of a company to control the quantity supplied
All of the following are limitations on the market power of a monopoly *except*
Antitrust laws
All of the following can be used to increase monopoly power except: -acquisitions. -lawsuits. -antitrust laws. -discounts for customer loyalty.
Price discrimination
Allows a producer to reap the highest possible average price for the quantity supplied
The number and size of the firms in the industry
An industry's market structure refers to
Monopolists
Are price makers, but competitive firms are price takers
Between 4/3 and 5/2 units of X
Assume Belgium can produce 5 units of good X or 2 units of good Y. Germany can produce 4 units of good X or 3 units of good Y. What would be the terms of trade between Belgium and Germany for 1 unit of good Y?
Between 5/8 and 4/3 units of X
Assume Saudi Arabia can produce 4 units of good X or 3 units of good Y. Tunisia can produce 5 units of good X or 8 units of good Y. What would be the terms of trade between Saudi Arabia and Tunisia for 1 unit of good Y?
Monopolists set prices
At the output where marginal revenue equals marginal cost.
Perfectly competitive market
It is easier for new firms to enter a
A monopoly
Charges higher prices than competitive firms, ceteris paribus.
Lower output and charge a higher price
Compared to the outcome under marginal cost pricing strategy, a monopolistically competitive firm will produce a
Less pressure to reduce costs and less reason to improve quality
Compared with a competitive market with the same cost and market demand circumstances, a monopolist has
Mean that the long-run average total cost curve is downward-sloping
Economies of scale over the entire range of market output
Very easy because few barriers exist
Entry into a market characterized by monopolistic competition is generally
Potential competition exists
Even if a market is not competitive, the firms in the market may behave competitively if
Brand loyalty
Exists even when products are virtually identical
Competitive industry and a monopoly
Face downward-sloping market demand curves
Use the profit-maximizing rule MC = MR
Firms in a monopolistically competitive market will
Monopolistic competition
For which of the following market structures will the firm's demand curve be tangent to the ATC curve in the long run? -duopoly. -monopolistic competition. -oligopoly. -monopoly.
No trade
From a consumer's viewpoint, which of the following policies would be least desirable? -tariffs on imported goods. -quotas on imported goods. -no trade. -free trade.
Price leadership
Helps achieve monopoly profit for the market
Barriers to entry
High training costs help firms maintain
Imported sugar
If US quotas on _______ were eliminated, the supply of sugar in the United States would shift to the right and sugar prices would fall.
Lose market share
If a firm in an oligopoly expands its market share at prevailing prices, its competitors
Output should increase in the long run
If a market changes from oligopoly to perfect competition, then as a result
Increase its output
If a monopolist is producing a level of output where MR exceeds MC, then it should
Is less than price
If a monopolistic competitor is maximizing profit, it is producing at a point where marginal cost
More firms will enter the market
If economic profits are earned in a monopolistically competitive market,
Shift to the left
If new firms enter a monopolistically competitive market, the demand curves for the existing firms will
Lower prices, increased output, and smaller profits
If oligopolists start cutting prices to capture a larger market share, the result will be
Greater profitability of import-competing firms
If the United States raises tariffs on foreign goods, it may achieve
Price discrimination
If tourists are charged a much higher price than the natives of a country for exactly the same item, what kind of pricing is involved?
Leads to increased output in export industries
If trade is mutually beneficial, then increasing trade
Positive: a net gain for the world and each country
If we add together all the gains from specialization and trade and then subtract all the losses, the net result would be
Contestable market
In a ________ barriers to entry and long-run economic profits are low
Price is greater than MC
In monopolistic competition there is allocative inefficiency because
Entry eliminates economic profit, and exit eliminates losses
In monopolistic competition, a firm's demand curve is tangent to the ATC curve in the long run because
The industry cost curves will shift to the left
In monopolistic competition, the entry of new firms will cause all of the following to happen *except*... -long-run economic profits will be zero. -the industry cost curves will shift to the left. -the firm's demand curve will shift to the left. -the market supply curve will shift to the right.
Cartel
Is a public agreement between firms or countries to restrict production and raise prices
Marginal revenue of a monopolist
Is positive up to the rate of output that maximizes total revenue
Decreased market output
Market power leads to market failure when it results in
Market output produced by a single firm
Market share is the percentage of total
Homogeneous products
Monopolistically competitive industries are characterized by all of the following *except*
Resource misallocation
Nonprice competition results in
Profits
Oligopolists have a mutual interest in coordinating production decisions in order to maximize joint
Is relatively independent; an oligopoly is interdependent
One of the main differences between an oligopoly and a monopolistically competitive firm is that a monopolistically competitive firm
Cartel
Open and explicit agreements concerning pricing and output shares transform an oligopoly into a
Have lower price elasticities of demand
Price-discriminating firms charge higher prices to those who
Quotas preclude additional imports at any price
Quotas are a greater threat to competition than tariffs because
Economies of scale
Reductions in minimum average costs that come about through increases in the size of plants and equipment are called
Product differentiation
Refers to features that make one product appear different from competing products in the same market.
Game theory
The study of how decisions are made when strategic interaction between firms exists is known as
- $500
Suppose a monopoly concrete contractor builds 20 driveways per month for $10,000 each. In order to increase sales to 21 driveways, the contractor must lower the price of driveways to $9,500. The marginal revenue of the 21st driveway is
Firms are required to set prices equal to marginal cost
Suppose that an economy wants to eliminate the resource waste associated with excess capacity in monopolistically competitive markets. Which of the following would achieve this goal? -firms are allowed to establish significant barriers to entry. -firms are encouraged to produce less output. -firms are required to set price equal to marginal cost. -firms are required to charge the same price.
Japan has a comparative advantage
Suppose the United States can produce 2,000 car or 2,000 trucks. Japan can produce either 2,000 cars or 1,000 trucks. In terms of car production we can conclude that...
90 percent
Suppose the larger firm of a duopoly has sales of $900 million and the smaller firm has sales of $100 million. The market share of the larger firm is
Making them more expensive to domestic consumers
Tariffs tend to reduce the volume of imports by
Predatory pricing
Temporary price reductions intended to drive out competition are referred to as
Lower opportunity cost
The United States is capable of producing many goods and services that it imports, but it does not because we can produce those goods at a __________ than if we make them ourselves.
Infant industry
The __________ argument can be justified because a new industry may be difficult to start in the face of existing foreign competition.
Market power
The ability to alter the market price of a product
Clear incentive
The argument that concentration of market power enhances research and development efforts may be weak because a monopoly may have no __________ to pursue new research and development.
20 to 40 percent
The combined market share of the top four firms in a monopolistically competitive industry will typically be in the range of
Economic profits toward zero
The competitive dimension of monopolistic competition is that low barriers to entry tend to push
Over 60 percent
The concentration ratio for an oligopoly is
Monopoly, oligopoly, monopolistic competition, perfect competition
The correct ranking of degree of market power (from highest to lowest) is
Low
The cross-price elasticity if demand for the products of monopolistically competitive firms is
Downward-sloping
The demand curve faced by a monopolistically competitive firm is
Import-competing
The elimination of import restrictions will redistribute income from ________ industries to export industries
Committed GATT members to a reduction of protectionism
The general agreement on tariffs and trade(GATT)....
Increase market share and profits
The goal of a company in an oligopoly industry is to
The degree of product differentiation
The main difference between perfect competition and monopolistic competition is
Confronts a downward-sloping demand curve
The marginal revenue of a monopolist falls below price because the firm
Advertising
The most common form of nonprice competition is
Oligopoly
The only market structure in which there is significant interdependence among firms with regard to their pricing and output decisions is
There are fewer firms and each is dependent on the actions of rivals
The potential for maximizing total industry profits is greater in oligopolies than in perfect competition because
Price leadership
The pricing strategy in which one firm is allowed to establish the market price for all firms in the market is called
Price-fixing
The pricing strategy in which there is an explicit agreement among producers regarding price is called
NAFTA
The primary purpose of the ________ is to increase employment and income in Mexico, Canada, and the United States by encouraging free trade.
Enforce the rules of free trade
The purpose of the World Trade Organization (WTO) is to
Perfect competition
There are many corn farmers, each of whom produces the same product. The corn market can best be classified as
Inhibit productivity advances
There is an inherent tendency of a monopoly industry to
Be between their respective opportunity costs in production
To ensure mutually beneficial trade, the terms of trade between two countries should always
It results in efficient allocation of resources
Which of the following is *not* true about advertising? -it creates brand loyalty. -it is a form of nonprice competition. -it results in efficient allocation of resources. -it raises the price of goods and services.
Cut their prices
What is the most likely response by rivals when an oligopolist cuts its price to increase its sales?
Product differentiation
When a business advertises that it's product has unique features that make it superior to other similar products, it is engaging in
Always exceed its production possibilities
When a country participates in international trade, its consumption possibilities...
Interdependent
When firms are _________, the profit of one firm depends on how its rivals respond to its strategic decisions.
Market price decreases
When new firms enter a monopolistically competitive industry, ceteris paribus, the
Each firm benefits, but society loses
When oligopoly firms collide to raise prices,
Domestic producers
When quotas are eliminated, losers include
Domestic steelworkers
Which group is most likely to be adversely affected by the importation of foreign steel?
Monopolistically competitive firms experience zero long-run economic profit; oligopolists may experience positive long-run economic profit
Which of the following characterizes the difference between oligopoly and monopolistic competition? -oligopolists are independent of each other; monopolistically competitive firms are interdependent. -Monopolistically competitive firms experience zero long-run economic profit; oligopolists may experience positive long-run economic profit. -there are many oligopolists but only a few monopolistically competitive firms. -monopolistically competitive firms face horizontal demand curves; oligopolists face downward-sloping demand curves.
Exclusive franchises
Which of the following contributes to a firm maintaining a monopoly? -exclusive franchises. -the existence of substitute goods. -a large number of firms in the industry. -homogeneous products in the market.
Belgium
Which of the following countries has the highest export ratio? -the United States. -Belgium. -China. -japan.
predatory pricing
Which of the following does *not* function as a barrier to entry into an oligopoly market? -patents. -the expense involved in nonprice competition. -control of distribution outlets. -predatory pricing.
Workers in export industries
Which of the following groups has an interest in encouraging free trade? -workers in import-competing industries. -producers in import-competing industries. -neither workers nor producers in any industry are in favor of trade. -workers in export industries.
Airlines
Which of the following industries is *not* an example of monopolistic competition? -pizza delivery. -toys. -notebook computers. -airlines.
Firms have zero control over price
Which of the following is *not* a characteristic of monopolistic competition? -many firms in an industry. -low concentration ratios. -some market power. -firms have zero control over price.
Age of the industry
Which of the following is *not* a determinant of market power? -number of producers. -availability of substitutes. -barriers to entry. -age of the industry.
It can earn economic profits in the long run
Which of the following is *not* true about a monopolistic competitor? -it maximizes profit at the point where MC = MR. -it produces less output than a perfectly competitive firm. -it charges a higher price than a perfectly competitive firm. -it can earn economic profits in the long run.
Economies of scale
Which of the following is a barrier to entry in a monopoly market? -economic profit of the monopolist. -antitrust laws. -a rising long-run average total cost curve. -economies of scale.
A higher standard of living for all trading countries
Which of the following is a gain from trade? -a higher standard of living for all trading countries. -a shorter workweek for all trading countries. -a level of self-sufficiency for all trading countries. -a higher price level for all trading countries.
Two shampoos differ only in their labels, but consumers pay $0.20 more for the label they recognize
Which of the following is an example of product differentiation? -two shampoos differ only in their labels, but consumers pay $0.20 more for the label they recognize. -sugar can be made from sugar beets or sugar cane, and consumers cannot tell the difference. -consumers substitute SUVs for cars because SUVs accommodate more passengers. -mills produce softwood and hardwood, but the two are used for different purposes.
A drug firm that has a patent granting it the exclusive right to produce a drug
Which of the following is likely to be a monopolist? -a drug firm that has a patent granting it the exclusive right to produce a drug. -a large firm like GM, which has a substantial portion of the car market. -the Boeing Company, which is one of the largest producers of airplanes. -an Indonesian restaurant in a large city.
The extent of barriers to entry
Which of the following is the critical determinant of market power?
It tends to realize only a normal profit
Which of the following is true about a monopolistically competitive firm in the long run? -it is as efficient as a purely competitive firm. -it tends to realize only a normal profit. -it produces at the level where costs are minimized. -it will practice marginal cost pricing.
There is excess capacity
Which of the following is true about a monopolistically competitive industry? -marginal cost pricing occurs. -there is excess capacity. -resources are allocated efficiently. -it produces at the minimum of ATC.
Monopolists competition, monopoly, and oligopoly
Which of the following market structures will have higher prices in the long run than perfect competition? -monopolistic competition and monopoly but not oligopoly. -oligopoly and monopoly, but not monopolistic competition. -monopoly, but not oligopoly or monopolistic competition. -monopolistic competition, monopoly, and oligopoly.
Monopolistic competition, oligopoly, and monopoly
Which of the following market structures will have lower output in the long run than perfect competition? -monopolistic competition, but not oligopoly or monopoly. -monopolistic competition, oligopoly, and monopoly. -monopolistic competition and oligopoly, but not monopoly. -oligopoly and monopoly, but not monopolistic competition.
No market power
Which of the following may *not* characterize an oligopoly?
Substantial market power
Which of the following may characterize a monopoly? -substantial market power. -low barriers to entry. -many firms. -differentiated product.
Gas stations with infrequently used pumps are located at all four corners of an intersection.
Which of the following real-world situations is the result of excess capacity in a monopolistically competitive market? -a factory producing women's clothing produces more than it can sell during a season. -gas stations with infrequently used pumps are located at all four corners of an intersection. -a retail auto tire store orders too much inventory. -monopolistically competitive firms do not exist in the real world.
The United States typically has a substantial trade surplus in services
Which of the following statements about US trade is true? -on average, other countries buy more US goods and services than the United States buys from them. -the United States has a trade deficit with every country with which it trades. -the United States typically has a substantial trade surplus in services. -since the US GDP is the largest in the world, it has a very high export ratio.
A monopolist's ability to act as a price setter guarantees economic profits in the short run
Which of the following statements is not correct? -a monopolist's ability to act as a price setter guarantees economic profits in the short run. -the monopolist's marginal revenue is less than the price for any output greater than one. -a monopolist's demand curve is the same as the market demand curve for the product. -in the long run, a monopolist will experience only positive or zero economic profits.
Monopolistically competitive firms
Which type of firm engages in nonprice competition?
Limited to its domestic production possibilities
Without trade, a country's consumption possibilities are...
Specialization
____________ in production increases output.
