ECON Module 3 Quizzes

The classic example of a private, unregulated monopoly is:

De Beers

If monopolistically competitive firms in an industry are making an economic profit, then:

New firms will enter the industry and product demand will decrease for the existing firms

From a game theory perspective, what is Francis's best dominant strategy in this "game?"

Produce the high quantity

Monopolistic competition is characterized by firms:

Producing differentiated products

In many large U.S. cities, taxicabs operate as near monopolies because of:

licenses

Which phrase would be most characteristic of pure monopoly?

single seller

Kim, if you and Francis were a monopoly and made 100 lunches and charged $11 per lunch, what would your profits be?

$1,000

Answer the next question(s) based on the following payoff matrix for a duopoly in which the numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy Refer to the above payoff matrix. If both firms collude to maximize joint profits, the total profits for the two firms will be:

$1,250,000

Okay, so if I am making 60 lunches and Francis holds to the agreement and keeps making 50 lunches, what is the maximum price i can charge per lunch?

$10

Kim, to maximize profits as a monopolist, what price would you charge for each of the 100 lunches?

$11 per lunch

Refer to the above table. If the firm shuts down in the short run, the total cost will be:

$2,500

Kim, I just came from Francis's truck. He has make 100 lunches and you have made 60. What is the maximum price that you can charge for your lunches?

$5 = 21 - 0.1 (100+6) - $5

Got it. And we would both charge $11 per lunch, so what would we each earn in profit>

$500

What are my profits if I am making 60 lunches and selling them for $10 each when my costs are $1 a lunch?

$540

Kim, Francis is going to increase the number of lunches he makes to 60, so what is the maximum price you each can charge for your lunches?

$9 = 21 - 0.1 (120) - $9

Increase my number of lunches to 60

....

Refer to the above graph. The profit-maximizing level of output for the firm is:

0C

Refer to the above graph. To maximize profits, this firm would produce:

0E units, which will result in economic profits equal to ABGH

Refer to the above graph. The profit-maximizing monopolist in it will set its output at:

0V

You mean each make one half of the monopolist's profit maximizing quantity? If we did that, how many lunches would each of us make?

50

Refer to the above graph of the representative firm in monopolistic competition. Marginal revenue and marginal cost intersect at point:

A

Refer to the above graph. Which point is definitely not on a competitive firm's short-run supply curve?

A

Refer to the above graph of the representative firm in monopolistic competition. The long-run equilibrium price and output for this firm will be:

A and D

Given the same cost data, a pure monopolist producer will charge:

A higher price and produce a smaller output than a purely competitive industry (idk)

In monopolistic competition, we usually observe:

A large number of firms, each operating with excess capacity

Which case below best represents a case of price discrimination?

A major airline sells tickets to senior citizens at lower prices than to other passengers

A major characteristic of monopolistic competition is:

A relatively large number of firms selling the product

Which is the best example of price discrimination?

A telephone company charging lower rates to weekend users than weekday users

Which would definitely not be an example of price discrimination?

An electric power company charges less for electricity used during off-peak hours when production costs are lower

Assume a purely competitive increasing-cost industry is in long-run equilibrium. Now suppose that an increase in consumer demand occurs. After all the resulting adjustments have been completed, the new equilibrium price:

And industry output will be greater than the initial price and output

Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will:

Attract other firms to enter the industry because the barriers to entry are low

Monopolistic competitive firms are productively inefficient because production occurs where:

Average total cost is greater than the minimum average total cost

Refer to the above graph. Which point is the shutdown point for the firm?

B

The supply curve for a pure monopolist:

Does not exist because there is no fixed relationship between price and quantity supplied

Which will make it easier for a cartel to operate effectively over time?

Each member firm observes the pricing and output decisions of other firms in the cartel

Refer to the above graph. At the profit-maximizing level of output there will be:

Economic profits equal to ABGH

Under conditions of pure monopoly:

Entry is blocked

If there is allocative efficiency in a purely competitive market for a product, the maximum price consumers are willing to pay is:

Equal to the minimum price producers are willing to accept

The kinked demand curve is based upon the assumption that an oligopolist's rivals will:

Follow a price cut, but ignore a price increase

If your costs remain the same at $1 per lunch, what are your profits now?

Francis and I will each earn $480 in profits.

Yes, that is what Francis was so upset about. What happened to Francis's profits when you increase your number of lunches?

Francis's profits fell by $50 - they went from $500 to $450

A cartel is formed among the major firms in an industry that maximizes joint profits of the firms. Each firm:

Has the incentive to cheat by cutting its price

The primary copper industry in the United States would be an example of a:

Homogeneous oligopoly

Kim, if you are making 60 lunches and Francis is making 100, and you are both charging $5 a lunch while it costs you $1 to make a lunch, how much are you each earning in profit?

I am earning $240 and Francis is earning $400.

Compared to the purely competitive firm, a pure monopoly:

Is able to use barriers to entry and maintain positive economic profits in the long run

A purely competitive firm does not try to sell more of its product by lowering its price below the market price because:

It can sell all it wants to at the market price

What is a potential negative effect of advertising?

It promotes monopoly power in industry

What is a positive effect of advertising?

It provides information that reduces search costs

Refer to the above graph. This monopolistically competitive firm is:

Making economic profit in the short run

Refer to the above graph of a representative firm in monopolistic competition. What does line 1 represent?

Marginal cost

Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by:

Marginal cost = marginal revenue

Refer to the above graph for a firm in pure competition. Line B represents:

Marginal revenue

A firm should increase the quantity of output as long as its:

Marginal revenue is greater than its marginal cost

A major reason that firms form a cartel is to:

Maximize joint profits

Kim, if Francis and you own the only two food trucks on this street, what kind of market are you operating in?

Oligopoly

Resources are efficiently allocated when production occurs at that output at which:

P equals MC

Refer to the above graph. The pure monopolist firm will charge a price of:

P3 (idk)

Which is a feature of a purely competitive market?

Products are standardized or homogeneous

Refer to the above table. When the firm produces 3 units of output, it makes an economic:

Profit of $3

Compared to pure competition, monopolistic competition:

Provides greater product differentiation at the cost of some excess capacity

A positive effect of advertising for society is that it:

Provides useful information to reduce search cost for consumers

Under what law and on what basis did the federal government find Microsoft guilty of violating the antitrust laws?

Section 2 of the Sherman Act

If firms are losing money in a purely competitive industry, then in the long run this situation will shift the industry:

Supply curve to the left, and the market price will increase (idk)

If firms enter a purely competitive industry, then in the long run this change will shift the industry:

Supply curve to the right, and the market price will decrease

Informal collusion to restrict output and increase prices is sometimes referred to as a:

Tacit understanding

Which is an example of a privately-owned monopoly?

The De Beers diamond syndicate

Refer to the above graphs. Which statement is true?

The firm is experiencing economic losses

A purely competitive firm will be willing to produce at a loss in the short run provided:

The loss is no greater than its total fixed costs

One defining characteristic of pure monopoly is that:

The monopolist produces a product with no close substitutes

So as an oligopoly you started at the profit-maximizing monopoly solution, but what equilibrium did you reach by day four?

The perfectly competitive market

A characteristic of monopolistically competitive industries is that:

The representative firms produces at that level of output where marginal cost equals minimum average total cost

In the long run, the profits for a monopolistic competitor (in terms of a return on its investment) will be:

The same as the profits for a purely competitive firm

Firms in an industry will not earn long-run economic profits if:

There is free entry and exit of firms in the industry

So Kim, when you both play your dominant strategy, where do you end up? What profits do you both earn?

We both earn $480 in profit.

Kim, what do you and Francis earn in profits if you are each making 100 lunches?

We both earn zero profit.

Kim, if you and Francis were not competitors, but were instead one firm - a monopoly - what would be the profit-maximizing number of lunches to make per lunch hour?

We would make a total of 100 lunches to maximize our monopoly profits.

One feature of pure monopoly is that the monopolist is:

a price maker

When the excess capacity problem under monopolistic competition becomes greater, there will be:

a wider range of consumer choice

The industry represented by the graph above where S1 and S2 are short-run supply curves, D1 and D2 are short-run demand curves, and LRS is the long-run supply curve can be said to be:

an increasing-cost industry

A profit-maximizing firm should shut down in the short run if the average revenue it receives is less than:

average variable cost

Competitive firms are assumed to:

be price takers

The final remedy in the Microsoft case is a

behavioral resolution

The initial district court's remedy in the Microsoft case was to

break up the company

Refer to the above graph of the representative firm in monopolistic competition. Demand is tangent to average total cost at point:

c (not sure)

Which product is produced in an industry that best illustrates the concept of homogeneous oligopoly?

copper

Refer to the above graph of a representative firm in monopolistic competition. What does line 3 represent?

demand (not sure)

In pure competition, price is determined where the industry:

demand and supply curves intersect

If there is allocative efficiency in a purely competitive market for a product, the MINIMUM price producers are willing to accept is:

equal to the maximal price consumers are willing to pay

Resources are efficiently allocated when production occurs at that output level where price:

equals marginal cost

In the Microsoft antitrust case, a Federal court ruled to break up the company on the basis of the:

firm's market behavior

Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a:

higher price and lower output

The U.S. primary steel industry is best described as a(n):

homogeneous oligopoly

An industry experiencing constant returns to scale and fixed factor prices will have a long run supply curve that is:

horizontal

The long-run supply curve in a constant-cost industry would be:

horizontal

Assuming no economies of scale and identical costs, if the firms in a purely competitive industry were replaced by a profit-maximizing monopolist, the likely result would be a(n):

increase in price and reduced output

The demand curve faced by a purely monopolistic seller

is downward sloping, whereas that facing the purely competitive firm is perfectly elastic.

A non-discriminating pure monopolist's demand curve:

lies above its marginal revenue curve

U.S. pharmaceutical companies charge different prices for prescription drugs to buyers in different nations, depending on elasticity of demand and government-imposed price ceilings. U.S. pharmaceutical companies, for profit reasons, oppose laws allowing reimportation of drugs to the United States because reimportation would

make it much more difficult to maintain the differing prices.

Which would be most characteristic of oligopoly?

mutual interdependence

A monopolistically competitive industry is like a purely competitive industry in that:

neither industry has significant barriers to entry

A feature of monopolistic competition is:

nonprice competition

On the graph above, what is the profit-maximizing level of output for a pure monopolist?

not A.. (idk)

Price discrimination is:

only illegal if used to lessen or eliminate competition.

Other things equal, which reduces competition in an industry?

patent laws

A barrier to entry that significantly contributes to the establishment of a monopoly would be:

patents

The pure monopolist's demand curve is not

perfectly inelastic because MR is negative when demand is inelastic, so MR = MC < 0.

If a monopolized industry should become purely competitive without any change in cost conditions:

price will decrease and quantity produced will increase

From a game theory perspective, what is your best dominant strategy in this "game?"

produce the high quantity

What are the payoffs in the typical duopoly game?

profits

Refer to the above diagram. All data are for the short run. The firm represented in this diagram is selling under conditions of:

pure competition

The market model with the largest number of firms is:

pure competition

The production of agricultural products such as wheat or corn would best be described by which market model?

pure competition

Under which market model are the conditions of entry the most difficult?

pure monopoly

Which market model has the least number of firms?

pure monopoly

Which would be characteristic of monopolistic competition?

relatively small market share for each firm

Any activity designed to transfer income or wealth to a particular individual or firm at society's expense is called:

rent-seeking

An example of a monopolistically competitive industry would be:

retail clothing

In which industry is monopolistic competition most likely to be found?

retail trade

A profit-maximizing monopolist facing the situation shown in the graph above should:

shut down immediately

A product's ability to satisfy a large number of consumers at the same time is called:

simultaneous consumption

Which industry would be the best example of an oligopoly?

steel

Which is true of a price discriminating pure monopolist?

the average price will be higher than in the non-discriminating cases

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is:

the consumer surplus

The difference between the actual price that a producer receives and the minimum acceptable price a producer is willing to accept is:

the producer surplus

The demand curve confronting a nondiscriminating pure monopolist is:

the same as the industry's demand curve

Average revenue is:

total revenue divided by quantity of output

In the Microsoft case, the court of appeals

upheld the lower court ruling, but altered the remedy