Econ Test 2 Study

Each of the following, except one, is a limitation on collusive behavior. Which is the exception? a. the market demand curve b. a tit-for-tat strategy c. the threat of prosecution d. incentives for firms to lower prices e. incentives for firms to raise output

B

The profit-maximizing price for the firm in Figure 11-3 is a. $165 b. $150 c. less than $150, but more than $100 d. irrelevant because the firm should shut down immediately e. less than $100

B

A cartel is a(n) a. form of explicit collusion in which the parties collectively behave like a monopoly b. market that changes very little as firms enter and exit c. implicit pricing scheme that does not involve explicit communication between the parties d. form of nonprice competition e. group of firms engaged in price discrimination

A

Technological changes that decrease minimum efficient scale a. reduce concentration b. increase concentration c. increase product diversification d. increase the value of existing assets e. decrease the exchange rate

A

The firm depicted in Figure 11-15 is one of three identical noncollusive oligopolists in an industry, where each charges price P2 and sells Q3. If the three firms form a cartel, the price and output combination for this firm will involve a a. higher price and lower output b. higher price and higher output c. higher price and the same output d. lower price and more output e. lower price and the same output

A

The monopolistically competitive firm shown in Figure 11-4 a. achieves a break-even outcome as its best alternative b. earns an economic profit in the long run c. suffers an economic loss in the long run d. shuts down since it suffers an economic loss e. produces at the minimum point of its LRATC curve

A

The players in a two-person game are choosing between Strategy X and Strategy Y. If the second player chooses Strategy X, the first player's best outcome is also to select X. If the second player chooses Strategy Y, the first player's best outcome is to select X. For the first player, Strategy X is called a a. dominant strategy b. collusive strategy c. tit-for-tat strategy d. repeated-trial strategy e. tacit strategy

A

Which of the following might be an effect of advertising? a. all of the following b. increased product differentiation c. increased total costs of production d. increased average total costs of production e. increased demand for the product

A

Collusive arrangements tend to collapse when a. there is a small number of sellers b. the benefits of cheating are great and the costs are low c. inflation is high d. interest rates are low e. there is a powerful price leader

B

All of the following, except one, would serve to increase competition in an oligopoly. Which is the exception? a. increased imports from foreign firms b. an increase in the minimum efficient scale c. an increase in the size of the market d. new technologies that reduce barriers to entry e. action by the U.S. Justice Department to break up large firms

B

Which of the following types of markets would be the most likely to maintain a successful collusive agreement? a. a market with many sellers, many buyers, unstable market demand, and privately negotiated prices b. a market with few sellers, many buyers, stable market demand, and privately negotiated prices c. a market with few sellers, many buyers, stable market demand, and publicized prices d. a market with many sellers, few buyers, stable market demand, and privately negotiated prices e. a market with few sellers, few buyers, unstable market demand, and publicized prices

C

Which of the following would likely be traded in a monopolistically competitive market? a. Electricity b. Airline Tickets c. Pizza d. Wheat e. Water

C

An oligopolistic firm that is part of a collusive agreement is less likely to cheat a. the more punishment it expects if the cheating is detected b. the lower is the possibility of detection c. the less likely is the collapse of the entire agreement as a result of cheating d. the greater is the additional profit from charging a lower price than the other firms e. the higher is the chance of taking customers away from competitors by charging a lower price

A

Compared to the market demand curve, a demand curve facing a monopolistically competitive firm would be a. more elastic. b. vertical. c. horizontal. d. the same as the market demand curve. e. less elastic.

A

Figure 11-13 shows the payoff matrix for two large auto dealerships, Jim's Autos and Tim's Autos. These intense rivals are the largest automobile dealers in the market by far. The matrix shows the profits that each firm would earn from choosing either a low price or a high price. Jim's dominant strategy is to a. always charge a low price b. always charge a high price c. charge a high price if Tim charges a low price d. charge a low price only when Tim charges a low price e. follow the price leadership of Tim's Autos

A

Globalization of markets can reduce oligopoly power by a. increasing the number of competitors b. increasing market prices c. bypassing antitrust legislation in a particular country d. identifying new markets for goods and services e. reducing the economies of scale

A

If a firm launches a successful advertising campaign, then its a. ATC curve shifts upward with a smaller rise at larger output levels b. ATC curve shifts upward with a smaller rise at smaller output levels c. demand curve shifts to the left and becomes flatter d. demand curve shifts to the right and becomes flatter e. demand curve shifts to the left and becomes steeper

A

In the long run when monopolistically competitive firms advertise, a. they will still earn zero economic profit b. they can earn positive economic profit by increasing market share c. the market price must fall d. the market price must rise e. there will be fewer units sold than in the short run

A

Sarah and Marisa are the only two baby-sitters available in a small town. Figure 11-14 indicates different combinations of hourly rates charged by the two teenagers, along with their weekly net earnings. If Sarah and Marisa do not collude, then a. in equilibrium, both will charge $4 per hour b. in equilibrium, both will charge $5 per hour c. in equilibrium, Sarah will charge $5 per hour; Marisa will charge $4 per hour d. in equilibrium, Sarah will charge $4 per hour; Marisa will charge $5 per hour e. there is no predictable equilibrium

A

Figure 11-13 shows the payoff matrix for two large auto dealerships, Jim's Autos and Tim's Autos. The matrix shows the profits that each firm would earn from choosing either a low price or a high price. The equilibrium level of profit for Jim's Autos would be a. $250,000 b. $100,000 c. $200,000 d. -$50,000 e. $150,000

B

Firms use advertising to a. standardize their products b. differentiate their products c. decrease market prices d. reduce total cost e. avoid antitrust penalties

B

If one were to rank the demand curve facing a firm from the least elastic to the most elastic, the ranking would be a. monopoly, perfectly competitive, monopolistically competitive b. monopoly, monopolistically competitive, perfectly competitive c. perfectly competitive, monopoly, monopolistically competitive d. monopolistically competitive, monopoly, perfectly competitive e. perfectly competitive, monopolisitcally competitive, monopoly

B

Paul the Pizza Man used a new method to streamline pizza assembly that allowed him to make more pizzas and thus make greater revenue. Paul began to earn positive economic profits. In the long run, Paul will a. continue to earn economic profits b. earn zero economic profits because other pizza places will begin to use his system c. continue to earn economic profits because Paul will get a patent on his new method d. earn negative economic profits because innovators always loose money e. earn zero economic profits because the government does not allow monopolistically competitive firms to earn economic profits

B

The influence of technological change on market structure a. invariably leads to domination by a few firms b. depends on whether it increases or decreases minimum efficient scale c. tends to increase concentration d. depends on whether it increases or decreases the product's value e. depends on foreign competition

B

U.S. antitrust enforcement policies have focused on a. encouraging price-fixing agreements to stabilize market prices b. limiting the activities of large firms when consumers are being harmed c. removing management from firms whose economic profits are excessive d. encouraging mergers in selected markets e. limiting output levels of firms in competitive markets

B

Under price leadership a. the leader must be the dominant firm in the industry b. all firms follow price changes initiated by the leader c. price cuts are followed by other firms in the industry, but price increases are not d. price increases are followed by other firms in the industry, but price cuts are not e. price wars often occur as a result of tit-for-tat strategies

B

When firms cooperate without an explicit agreement, they are engaging in a. explicit collusion b. tacit collusion c. reverse collusion d. inclusion e. rent seeking

B

When oligopolists make joint decisions concerning their prices and output levels, they are a. a natural oligopoly b. colluding c. a duopoly d. a homogeneous oligopoly e. practicing bilateralism

B

When oligopolists secretly cooperate for their mutual benefit they are engaging in a. inclusion b. collusion c. seclusion d. exclusion e. discrimination

B

Which concept is best illustrated by the "prisoner's dilemma"? a. product standardization b. interaction c. profit maximization d. marginal analysis e. average total cost

B

Which of the following best describes real-world U.S. markets? a. In most markets, the firms face steep demand curves for their output. b. They combine characteristics of monopolistic competition, oligopoly, and monopoly. c. Effective competition exists in only about 25 percent of those markets. d. The dominant share of U.S. manufacturing output is produced by firms with the power to vary their prices over a wide range. e. Perfect competition is useful as a model for very few U.S. markets.

B

Which of the following is an example of a cartel? a. AFL-CIO b. OPEC c. United Auto Workers Union d. NATO e. Organization of American States

B

A cartel a. has one firm that acts as the price leader b. is a group of firms engaged in price discrimination c. acts like a monopoly d. involves competition between rival firms e. prices its output equal to marginal cost

C

Antitrust policies attempt to protect consumers by a. imposing criminal sanctions on firms with excessive economic profits b. ensuring that firms do not produce more than the socially desirable level of output c. making sure that there is a sufficient amount of competition in markets d. requiring all products to have an implied warranty e. disseminating rules and regulations for consumers to use in the marketplace

C

As a result of advertising prices in monopolistic competition, are a. higher because firms earn economic profits in the long run b. higher because increased output leads to higher production costs per unit c. lower if increased output allows lower average production costs per unit that more than offset the advertising costs d. lower if advertising costs per unit fall as output increases e. higher because advertising shifts each firm's demand curve to the right and make it flatter

C

Figure 11-13 shows the payoff matrix for the only two auto dealerships in a community, Jim's Autos and Tim's Autos. The matrix shows the profits that each firm would earn from choosing either a low price or a high price. In this example, a. both firms would be best off if they charged a low price b. there is no equilibrium to the market c. both firms would be best off if they charged a high price d. both firms will go out of business in the long run e. the market is more efficient than a perfectly competitive market

C

If a cartel is formed in order to maximize the total profits of its members, it will a. charge the monopoly price, but produce more output than a monopoly would b. produce the monopoly output, but charge a lower price than a monopoly would c. charge the same price, and produce the same quantity that a monopoly would d. charge a higher price and produce more output than a monopoly would e. charge the monopoly price, but total output may be higher or lower than a monopoly's

C

In a price-leadership oligopoly, it is much simpler for the price leader to identify its dominant strategy when a. at least one price follower has a terminal strategy b. it expects competition from the other firms c. it expects other firms to match its prices d. the government actively seeks antitrust penalties e. price equals marginal cost

C

In the United States, price-fixing cartels are a. ubiquitous b. nonexistent c. generally illegal d. discouraged the Department of Labor e. dominant in small industries with large numbers of firms

C

In the airline industry, tit-for-tat strategies have frequently led to a. reciprocal hiring practices b. cost-reducing innovations c. profit-destroying price wars d. pricing policies that encouraged the entry of new firms e. profit-enhancing wage bargains

C

Price leadership a. is a form of explicit collusion b. works only when firms have dominant strategies c. is a form of tacit collusion d. reduces long-run economic profit for individual firms e. rarely is effective in setting prices in oligopolistic markets

C

U.S. antitrust enforcement policies have focused on a. breaking up any firm with more than a 10 percent market share b. forcing firms to produce output at the point where P = MC c. preventing price-fixing arrangements d. preventing "golden parachutes" e. enforcing market codes of ethics

C

A famous cartel that dramatically increased the price of oil in the mid-1970s was a. OTEC b. IMF c. OECD d. OPEC e. LDC

D

A successful tit-for-tat strategy leads to a. explicit collusion b. a cartel c. a duopoly d. tacit collusion e. market disequilibrium

D

An oligopolistic industry in which one firm sets the price is a. a cartel b. a duopoly c. a monopoly d. price leadership e. a price-discriminating duopolist

D

Firms will have a greater incentive to cheat on a collusive agreement when a. the number of sellers is relatively small b. total market sales are small c. the market is perfectly competitive d. demand is rapidly changing e. prices are known to all firms in the market

D

If a firm earns zero economic profit in the long run, then it a. must be in a perfectly competitive market b. must be in a monopolistically competitive market c. cannot be in a monopolistically competitive market d. could be in any of the four major market structures e. is not in an oligopoly

D

If a monopolistically competitive firm engages in a successful advertising campaign resulting in above positive economic profits then in the long run that firm will a. continue to earn positive economic profits because successful advertising is one of the barriers to entry b. earn zero economic profits because the government will begin to regulate the industry c. earn negative economic profits because it won't be able to advertise indefinitely d. earn zero economic profits because other firms will also begin to advertise e. continue to earn positive economic profits because most monopolistically competitive firms can earn economic profits in the long run

D

If there are a large number of sellers in a market, a. it is difficult for firms to cheat on a collusive agreement b. a cartel is unlikely to break down c. prices are higher than in smaller markets d. a cartel is likely to break down e. perfect competition occurs in the long run

D

In addition to shifting its demand curve to the right, a firm may engage in advertising in order to a. make its demand curve more elastic b. increase the elasticity of its supply curve c. discourage competition d. make its demand curve less elastic e. decrease consumer awareness

D

New technologies may reduce oligopoly power by a. increasing the minimum efficient scale b. raising barriers to entry c. raising prices and lowering output d. reducing barriers to entry e. reducing the choices available to consumers in the market

D

Oligopolies in the United States rarely engage in explicit collusion because a. it leads to lower profits b. firms are very wary of each other in this type of market c. they may have different dominant strategies d. it is illegal e. dominant strategies may not exist

D

Under tacit collusion, a. firms form an explicit agreement to cooperate b. prices are usually lower than under perfect competition c. firms are usually subject to prosecution in the United States d. there is no explicit agreement for firms to cooperate e. firms meet to set prices and output levels for the industry

D

What characteristic is common to perfect competition, monopolistic competition, and monopoly? a. free entry and exit b. zero economic profit in the long run c. firms treat the market price as given d. firms maximize profits by producing where MR = MC e. small number of buyers relative to the number of sellers

D

When the oil-producing countries of the Middle East meet to set prices and output levels, this is an example of a. monopoly behavior b. profit sharing c. market distribution d. explicit collusion e. tacit collusion

D

Which of the following has contributed to decreased concentration in U.S. industry since the 1970s? a. rising interest rates and disinflation b. segmentation and economies of scale c. devaluation and economies of scale d. technological change and market globalization e. marginal cost pricing and product differentiation

D

Which of the following pairs of characteristics would be consistent with imperfect competition? a. Many buyers and sellers and no barriers to entry b. Many buyers and sellers and a homogenous product c. No barriers to entry and all buyers and sellers have perfect information d. Many buyers and sellers and some barriers to entry e. Many buyers and sellers and everyone has perfect information

D

Which of the following would make cheating on a collusive agreement more likely? a. greater ease of observing other firms' prices b. a reduction in the number of sellers in the market c. close monitoring by the Department of Justice d. more frequent shifts in market demand e. an increase in the number of customers in the market

D

After much success during the 1970s, the OPEC cartel saw the price of oil and the revenues of its members decline during the 1980s due, in part, to a. the low elasticity of demand for oil in the short run b. the large number of buyers from each member nation c. surging demand for oil in the early 1980s d. publicity concerning the prices negotiated with each member e. the greater long-run elasticity of demand for oil

E

Cartels frequently break down in the long run because a. they are illegal b. tacit collusion is illegal c. contracts and agreements are legally binding d. cooperative behavior usually lowers profits for the entire industry e. members have an incentive to increase output

E

Cheating on a collusive agreement is more likely when a. a price floor is in effect b. firms are located in the same state c. it is easy to observe the other firms' prices d. there is a small number of firms e. market demand is unstable

E

If a market is not subject to large, frequent shifts in demand, a. firms will have a tendency to lower prices to increase market share b. the market will have few firms c. prices will approach equilibrium very slowly d. price leadership will rarely occur e. cheating on collusive agreements is more difficult

E

If an Industry consists of two large firms, it is known as a(n) a. monopoly b. perfect competition c. monopolistic competition d. natural monopoly e. duopoly

E

If market structures are ranked from the one in which firm(s) face the flattest demand curve to the one where they face the steepest, the correct order is a. monopoly, monopolistic competition, perfect competition b. monopolistic competition, perfect competition, monopoly c. monopolistic competition, monopoly, perfect competition d. perfect competition, monopoly, monopolistic competition e. perfect competition, monopolistic competition, monopoly

E

In which of the following situations is cheating on a collusive agreement is most likely? a. Prices are publicly posted. b. There are few sellers in the market. c. The market demand curve is elastic. d. There are economies of scale. e. Prices are difficult for competitors to observe.

E

Limits to collusion include a. price discrimination b. economies of scale c. horizontal market demand curves d. high prices e. incentives to cheat on the collusive agreement

E

One strategic barrier that may keep new firms out of a market is a. producing where marginal cost equals marginal revenue b. a low minimum efficient scale c. bounded markup pricing d. efficiency wages, which may make it impossible for new entrants to compete profitably e. excess capacity, which may serve as a signal to new entrants to stay away

E

The demand curve facing a monopolistic competitor is a. a horizontal line at the market price b. upward sloping c. perfectly elastic d. perfectly inelastic e. downward sloping

E

When colluding oligopolists meet and formally agree on mutually beneficial strategies this is called a. implicit exclusion b. beneficial inclusion c. reciprocal inclusion d. implicit exclusionary pricing e. explicit collusion

E

With price leadership, a. price equals marginal cost b. the industry output is generally greater than a competitive industry c. prices are set by explicit collusion d. firms price discriminate among different classes of customers e. there is no formal agreement regarding prices

E

ith successful collusion that maximizes the total profits of the firms in the market, a. the market demand curve shifts leftward b. monopoly power allows the sellers to charge whatever price they want for their joint output level c. each firm faces a horizontal demand curve for its output d. each firm can sell as much output as it chooses at the price set by the cartel e. the pricing decision is constrained by the market demand curve

E

At the profit-maximizing, or loss-minimizing, output level, the firm in Figure 11-2 has total cost approximately equal to a. $2,000 b. $3,000 c. $3,600 d. $800 e. $1,625

B

A market with more than one seller and significant barriers to entry is called a. perfect competition b. monopolistic competition c. an oligopoly d. collusive e. regulated

C

An oligopolist cannot use the MR = MC rule to find its equilibrium output level because a. oligopolists do not face stable demand curves for their output b. oligopolists do not try to maximize profits in the long run c. it is too difficult to estimate marginal cost d. the rule applies only in perfect competition e. the minimum efficient scale exceeds total quantity demanded

A

Assume the firm in Figure 11-2 is currently producing 13 units of output and charging $380 each. The firm a. will increase its profit if it raises its price and reduces its production level b. will increase its profit if it lowers its price and expands its production level c. cannot increase economic profit by changing its price and output since it is already maximizing its profit d. will increase its profit if it raises its price and expands its production level e. will increase its profit by lowering its price and reducing its production level

A

At the profit-maximizing, or loss-minimizing, level of output for the firm in Figure 11-3, total revenue is approximately a. $10,500 b. $11,000 c. $5,600 d. $8,250 e. zero because the firm should shut down immediately

A

At the profit-maximizing, or loss-minimizing, level of output in Figure 11-3, the firm's total cost is approximately a. $14,000 b. $12,750 c. $9,100 d. $16,185 e. $8,400

A

Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The yearly economic profits from each strategy are indicated in Figure 11-12. The upper right side of each rectangle shows Brian's profits; the lower left side shows Matt's profits. Which of the following statements is correct? a. Matt's dominant strategy is to charge a low price. b. Brian's dominant strategy is to charge a high price. c. The dominant strategy for both Brian and Matt is to charge a low price. d. Matt's dominant strategy is to charge a high price. e. Neither Brian nor Matt has a dominant strategy.

A

By keeping new firms from entering the market, oligopolies are more likely to have a. long-run economic profit b. low prices c. great efficiency d. decreasing marginal costs e. economies of scale

A

Cecilia's Cafe is a monopolistic competitor. If Cecilia's is currently producing at the output level at which her average total cost is minimized and the cafe is earning an economic profit, then, in the long run, output will a. decline and average total cost will increase b. decline and average total cost will decrease c. remain unchanged as Cecilia's strives to minimize costs d. increase and average total cost will be greater e. increase and average total cost will be smaller

A

Consider the typical monopolistically competitive firm whose demand curve and cost structure is illustrated in Figure 11-5. Which of the following statements is correct in the long run? a. Some firms will exit this market, and the demand curves facing the remaining firms will shift rightward. b. Some firms will exit this market, and the demand curves facing the remaining firms will shift leftward. c. Firms will enter this market, and the demand curves facing the remaining firms will shift rightward. d. Firms will enter this market, and the demand curves facing the remaining firms will shift leftward. e. Firms will enter this market, but the demand curves facing the remaining firms will not change

A

If a market is dominated by a few large, interacting firms, it is said to be a(n) a. oligopoly b. monopoly c. integrated monopoly d. monopolistically competitive market e. perfectly competitive market

A

One barrier to entry that may maintain an oligopoly is a. government policy designed to limit foreign competition b. a low minimum efficient scale c. bounded markup pricing d. efficiency wages that make it impossible for new entrants to compete profitably e. executive payoffs

A

If a monopolistically competitive firm raises its price, a. quantity demanded falls to zero b. quantity demanded declines, but not to zero c. the market supply curve shifts outward d. the market supply curve shifts inward e. quantity demanded remains constant

B

If the firm represented in Figure 11-7 is typical of other firms in the industry, then, as the long run approaches, a. some firms will exit, and the demand curves facing the remaining firms will shift to the left b. some firms will exit, and the demand curves facing the remaining firms will shift to the right c. some firms will enter, and the demand curves facing the remaining firms will shift to the left d. some firms will enter, and the demand curves facing the remaining firms will shift to the right e. the industry will eventually disappear

B

A Nash equilibrium a. occurs when quantity demanded equals quantity supplied b. exists when each player in a game is taking its best action -- given the actions taken by the other players c. exists when each player in a game picks the collectively optimal strategy d. is a kind of equilibrium that exists only in an oligopoly e. is a kind of equilibrium that exists only in a duopoly

B

A firm in a monopolistically competitive market is similar to a monopolist in the sense that it a. must overcome significant barriers to entry b. faces a downward-sloping demand curve c. produces a large share of the market output d. is dependent on the actions of other firms e. produces the same product as its competitors do

B

A natural oligopoly occurs when a. few firms can afford to compete in the industry b. the minimum efficient scale is a large fraction of the market c. there are a large number of buyers and sellers of a standardized product d. minimum efficient scale is greater than total market demand at the price equal to minimum long run average total cost e. competitive pricing drives firms from the market

B

All of the following, except one, are characteristics of monopolistic competition. Which is the exception? a. There is a large number of sellers. b. Each seller faces a horizontal demand curve for its product. c. There are no significant barriers to entry or exit. d. Sellers produce differentiated products. e. There is a large number of buyers.

B

At the long-run equilibrium output level, a monopolistically competitive firm's average total cost curve a. lies below the demand curve b. is tangent to (just touches but does not cross) the demand curve c. crosses the demand curve from below d. crosses the demand curve from above e. is at its minimum point

B

Camille's Chicken operates in a monopolistically competitive market. If Camille implements a new free delivery service for customers, a. this is an example of advertising b. this is a form of nonprice competition c. total revenue will increase d. total cost will decrease e. her firm will be acting as if it were perfectly competitive market

B

Figure 11-2 illustrates a monopolistically competitive firm. In order to maximize profit, or minimize loss, the firm will a. close down b. produce approximately 10 units of output and charge approximately $500 c. produce approximately 7.5 units of output and charge nearly $600 d. produce approximately 12.5 units of output and charge approximately $425 e. produce 5 units of output and charge $650

B

If the sellers in a market are aware of their strategic interdependence, then a. each firm bases its pricing and output decisions on the monopoly model b. each firm, when making pricing or output decisions, must consider the reactions of its competitors c. the firms have little incentive to collude in their pricing and output decisions d. the firms undertake little advertising because they cannot recoup the cost through higher prices e. no firm is able to earn above-normal profit in the long run

B

In game theory a listing of the rewards or punishments that each player will receive for each possible combination of strategies is called a. the marginal strategy schedule b. the payoff matrix c. strategic planning d. the input-output matrix e. the game listing payoff

B

In the long run, a monopolistic competitor will a. always produce at minimum efficient scale b. produce too little output to achieve minimum cost per unit c. use limit pricing to forestall competition d. earn economic profits e. standardize its product

B

In the short run, a monopolistically competitive firm a. must earn zero economic profit b. may earn positive or negative economic profits c. will produce output up at the point where TR = TC d. will be protected from competition by barriers to entry e. will equate price and marginal cost

B

In which market structure do firms consider the actions of their rivals when setting prices and output? a. monopoly b. oligopoly c. perfect competition d. both monopoly and perfect competition e. monopolistic competition

B

Since the demand curve faced by a monopolistically competitive firm is downward sloping, a. the firm is a price-taker in the short run b. in the long run there will be excess capacity c. the output decisions of one firm will influence profits of all other firms d. the product in the market is viewed by consumers as being standardized e. the ATC curve is U-shaped

B

The best outcome the firm illustrated in Figure 11-3 can achieve is a(n) a. economic loss equal to its fixed cost b. economic loss of $3,500 c. economic loss of slightly more than $7,000 d. economic loss of approximately $4,000 e. profit per unit of output approximately equal to $40

B

The demand curve faced by a monopolistically competitive firm a. is the same as the market demand curve b. is less elastic than the one faced by firms in perfect competition c. is perfectly elastic d. is perfectly inelastic e. has a constant slope

B

The key characteristic of oligopoly is a. that firms are price takers b. strategic interaction among firms c. strategic independence among firms d. that firms deal with few resource suppliers e. a low minimum efficient scale of production

B

The monopolistic competitor in Figure 11-4 will maximize its economic profits, or minimize its losses, by a. producing 100 units of output and charging $200 b. producing 100 units of output and charging slightly more than $300 c. producing 125 units of output and charging $300 d. shutting down, since it has greater losses at any level of production than at zero e. producing approximately 180 units of output and charging approximately $225

B

The outcomes of different combinations of strategies by two players in a game are indicated in the a. strategy box b. payoff matrix c. competition matrix d. outcome dilemma e. collusion matrix

B

Which of the following best describes the idea of excess capacity in monopolistic competition? a. Firms produce more output than is socially desirable. b. The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve. c. Due to product differentiation, firms choose output levels at which P > ATC. d. Firms keep some surplus output on hand in case there is a shift in demand for their product. e. The collective output of all firms in the market typically exceeds the quantity demanded.

B

Which of the following is not true of the firm in Figure 11-9? a. It has excess capacity. b. It produces at the minimum efficient scale of production. c. It cannot earn an economic profit. d. It is operating in the long run. e. It has no fixed costs.

B

With economies of scale, a firm can continue to lower its cost per unit by increasing output a. without limit b. up to the minimum efficient scale c. until the firm is meeting market demand single-handedly d. to some point between the minimum efficient scale and the market demand curve e. halfway to the minimum efficient scale

B

A strategy that is best for a player regardless of the strategy of the other player is called a(n) a. subsistence strategy b. determinant strategy c. dominant strategy d. independent strategy e. autonomous strategy

C

A two-player game has an equilibrium outcome a. only if both players have dominant strategies b. if neither player has a dominant strategy c. whenever one player has a dominant strategy d. only with tit-for-tat strategy e. only with repeated trials

C

All of the following, except one, are sources of product differentiation. Which is the exception? a. product quality b. location c. price d. consumer tastes e. buyers' perceptions

C

An oligopoly is a market a. dominated by a single seller b. dominated by a single buyer c. dominated by a small number of strategically interacting firms d. with many buyers and sellers, no barriers to entry and differentiated products e. with many buyers and sellers, no barriers to entry and a standardized product

C

Figure 11-10 illustrates the long-run market demand curve and a typical firm's costs. How many firms are likely to exist in the long run in this industry? a. none b. 1 c. 2 d. 3 e. 4

C

Figure 11-10 represents the costs of a typical firm along with the market demand curve. In the long run, this industry is most likely going to be a a. declining industry b. natural monopoly c. natural oligopoly d. natural monopolistically competitive industry e. perfectly competitive industry

C

Figure 11-10 shows the long-run market demand curve and the cost structure for a typical monopolistic competitor. The minimum efficient scale (MES) is a. 0 b. 200 units c. 400 units d. 800 units e. 1,200 units

C

For the monopolistically competitive firm, a. competition is blocked by barriers to entry b. limit pricing can forestall competition indefinitely c. marginal revenue is less than the product's price d. price discrimination is a key tool e. marginal revenue is equal to the product's price

C

If a market has more than one seller, but fewer sellers than under perfect competition, it is referred to as a. a monopoly b. competitive c. imperfect competition d. an efficient market e. optimal

C

If the firms in a monopolistically competitive market are earning short-run economic profits, then a. each existing firm will increase output in the long run as its marginal revenue curve shifts rightward b. each firm will experience an increase in the demand for its output in the long run c. each firm's profit will drop to normal in the long run as its demand curve shifts leftward due to entry of new firms d. barriers to entry will enable them to earn economic profits in the long run e. decreased demand for a key input will reduce that input's price in the long run and lower each firm's average total cost curve

C

If the minimum efficient scale of production is small relative to the size of a market, then a. the industry will tend to be highly concentrated b. there will be much strategic interdependence among the sellers in the industry c. the industry is unlikely to be an oligopoly d. it is more likely that sellers in the industry will successfully collude e. there will be much merger activity in the industry

C

In monopolistic competition, product differentiation causes a. the firms to earn economic profits in the long run b. a horizontal demand curve for each firm's output c. the firms to operate with excess capacity d. significant barriers to entry e. high concentration ratios

C

In the long run, entry ensures that the typical monopolistically competitive firm will a. produce at minimum efficient scale b. earn an economic profit c. earn a normal profit d. price its output at marginal cost e. standardize its product

C

In the prisoner's dilemma, a. the prisoners easily collude in order to achieve the best possible payoff for both b. only one player has a dominant strategy c. each player has a dominant strategy d. playing the dominant strategy leads to a better payoff for one prisoner than if the two jointly selected a strategy e. playing the dominant strategy leads to a better payoff for both prisoners than if the two jointly selected a strategy

C

One explanation for why oligopolies exist is that a. it is easier to regulate a smaller number of firms b. minimum efficient scale is small relative to the market, allowing a large number of firms to achieve minimum long-run average total cost c. minimum efficient scale is large relative to the market, allowing only a few firms to achieve minimum long-run average total cost d. minimum efficient scale may be greater than the market quantity demanded at the price equal to minimum long-run average total cost e. competitive pricing drives firms from the market

C

The airline and long-distance telephone service industries are examples of a. monopolistic competition b. monopolies c. oligopolies d. perfect competition e. oligopolistic competition

C

The output level at which a firm's long-run average total cost is minimized is known as its a. profit-maximizing output level b. long-run marginal cost c. minimum efficient scale d. revenue maximization level e. equilibrium cost structure

C

The profit-maximizing, or loss-minimizing, output for the firm in Figure 11-3 is a. zero units b. 50 units c. 70 units d. 75 units e. 83 units

C

When there are many buyers and sellers, no significant barriers to entry, and a differentiated product, the market structure is called a. an oligopoly b. perfect competition c. monopolistic competition d. a monopoly e. unbalanced monopoly

C

Which of the following is a distinguishing characteristic of oligopolies? a. a standardized product b. the goal of profit maximization c. the interdependence among firms d. downward-sloping demand curves faced by firms e. a downward-sloping market demand curve

C

Which of the following must be true in an oligopoly? a. The firms produce a differentiated product. b. There is one dominant firm in the market. c. The firms are strategically interacting. d. The market is international in scope. e. There are no significant barriers to entry.

C

A dominant strategy is one that a. makes every player better off b. makes at least one player better off without hurting the competitiveness of any other player c. increases the total payoff for one player d. is best for a player, regardless of what strategy other players follow e. leads to quicker convergence to market equilibrium

D

All of the following are examples of barriers to entry, except one. Which is the exception? a. significant economies of scale b. reputation of established firms c. special deals with distributors d. excessive prices e. patents

D

Any action, other than lowering its price, that a firm undertakes to increase the demand for its output is called a. limit pricing b. price enhancement c. illicit competition d. nonprice competition e. price intensive competition

D

Each of the following, except one, is a characteristic of a monopolistically competitive market. Which is the exception? a. differentiated products b. no significant barriers to entry c. many buyers d. a standardized product e. many sellers

D

Firms in a monopolistically competitive industry maximize profits by a. equating total revenue and total cost b. treating price as given and maximizing output c. minimizing costs d. producing the level of output at which MR = MC e. producing the level of output at which TR = TC

D

Game theory is based on the idea that a. government determines the rules of the game b. firms are strategically independent c. firms are price takers d. a player's strategy must take account of the strategies followed by other players e. a player's strategy must be independent of the strategies followed by other players

D

If consumers are loyal to the products of an existing firm, this loyalty may a. reduce the incentives for the firm to invest b. result in more responsive management and better quality products c. reduce the demand for imported goods d. serve as a barrier to new entry into the market e. force the firm to produce at higher costs

D

If the monpolistically competitive firm in Figure 11-8 is typical of its competitors, the industry will likely experience a. increasing returns to scale b. entry of new firms c. exit of existing firms d. no change in the long run e. exit of all firms

D

In monopolistic competition, nonprice competition a. allows firms to earn above-normal profit in the long run b. initially causes a leftward shift in the demand curve for each firm's output c. causes each firm to move upward along a given average total cost curve d. might lead to economic profit in the short run e. causes each firm to move toward the right along the given demand curve for its output

D

In order for a market to be classified as an oligopoly, a. there must be fewer than 10 firms b. the four largest firms must have 90 percent of the market c. there must be fewer than 5 firms d. the firms must be strategically interacting e. the firms must be strategically independent

D

In the long run, equilibrium for a monopolistically competitive firm resembles equilibrium for a monopoly in the sense that a. both types of firms are able to earn economic profits b. marginal cost exceeds marginal revenue c. price equals marginal cost d. price exceeds marginal cost e. average revenue exceeds price

D

In the short run, a monopolistic competitor can a. not earn an economic profit because of competition b. use limit pricing to reduce competition c. maximize profits by charging the highest price the market will bear d. earn an economic profit e. maximize profit by selecting the minimum efficient scale

D

It is difficult to explain how firms behave in an oligopoly because a. they produce differentiated products b. there are many suppliers and few buyers c. they do not attempt to maximize profits d. each takes into account the behavior of other firms when making pricing decisions e. there are no barriers to entry or exit

D

Natural oligopolies occur when a. the government establishes a market with a few large producers b. the market output could be produced at a higher cost by several large firms rather than many small firms c. there are no barriers to entry d. the total market output could be produced at a lower cost by several large firms rather than many small firms e. one large firm can produce the total market output at a lower cost than several smaller firms could

D

Oligopolies feature a. the absence of barriers to entry b. extensive competition c. the goal of profit maximization d. strategic interaction of firms e. product differentiation

D

Oligopoly a. is a market structure of many small firms b. is the only seller of a good or service c. is a market structure of a few consumers of a product d. is a market structure of a few interdependent firms e. is a more efficient market structure than perfect competition

D

The U.S. market for locomotives is divided between two producers; General Electric has 70 percent of the market and General Motors has 30 percent. This market is an example of a. a bilateral monopoly b. monopolistic competition c. a collusive monopoly d. a duopoly e. a cartel

D

The maximum total economic profit, or minimum economic loss, for the monopolistically competitive firm in Figure 11-2 is a. zero b. a profit of $575.00 c. a profit of $1,562.50 d. a profit of $2,000.00 e. a loss of $375.00

D

The total fixed cost in Figure 11-2 is a. increasing as more is produced b. decreasing as more is produced c. larger than variable costs d. less than $1,000 e. more than $1,000

D

We may not be able to predict the outcome of a two-player game when a. each player follows a strategy that negates the strategy of the other player b. price exceeds marginal cost c. neither player has a subsistence strategy d. neither player has a dominant strategy e. at least one player has a bilateral strategy

D

Which of the following is an example of nonprice competition? a. giving coupons for 10 percent discounts to potential customers b. having a Memorial Day Sale c. lowering the price on several selected brands d. offering a product in three colors-blue, green, and red-in addition to the standard black e. increasing the price on all products

D

A market in which a small number of strategically interacting firms produce the dominant share of output is called a. perfect competition b. a monopoly c. monopolistic competition d. regulated e. an oligopoly

E

All of the following, except one, can be a barrier to entry into an oligopoly market. Which is the exception? a. heavy advertising by existing firms b. zoning regulations c. excess production capacity among existing firms d. tariffs and quotas e. a small minimum efficient scale

E

An equilibrium occurs in a game when a. price equals marginal cost b. quantity supplied equals quantity demanded c. all independent strategies counterbalance all determinate strategies d. all players follow a strategy that negates the strategies of at least one other player e. all players follow a strategy that they have no incentive to change

E

An important difference between a perfectly competitive market and a monopolistically competitive market is that, in the latter, a. there are more sellers of the good b. there are only a few large sellers c. there are no barriers to entry or exit d. there is only one seller of the good e. the product is not standardized

E

Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The yearly economic profits from each strategy are indicated in Figure 11-12. The upper right side of each rectangle shows Brian's profits; the lower left side shows Matt's profits. Which of the following statements is correct for a one-trial game? a. The market equilibrium price is the high price. b. A market equilibrium price cannot be established unless Brian and Matt collude. c. A market equilibrium price cannot be established unless Brian or Matt engages in tit-for-tat strategy. d. A market equilibrium price cannot be established without repeated trials. e. The market equilibrium price is the low price.

E

Consider the monopolistically competitive firm whose demand curve and cost structure are illustrated in Figure 11-1. Which of the following statements is correct in the short run? a. The firm will produce 100 units and suffer a loss of $400 per week. b. The firm will produce 100 units and suffer a loss of $300 per week. c. The firm will produce 100 units and suffer a loss of $1,000 per week. d. The firm will produce 100 units and suffer a loss of $100 per week. e. The firm will produce zero units and suffer a loss of $300 per week.

E

Given the environment illustrated in Figure 11-3, the best outcome the firm can achieve in the short run is a. both c and e b. an economic profit c. to shut down to minimize short-run loss d. a break-even outcome e. an economic loss

E

Given the marginal cost and average total cost curves in Figure 11-6, a monopolistically competitive firm in long-run equilibrium will produce a. 250 units and charge a price of $6 b. less than 250 units and charge a price below $6 c. more than 250 units and charge a price below $6 d. more than 250 units and charge a price above $6 e. less than 250 units and charge a price above $6

E

In a Nash equilibrium a. any player can improve his outcome by changing one other player's strategy b. any player can improve his outcome by forcing other players to adopt their dominant strategies c. no player plays her dominant strategy d. no player can improve his own outcome e. no player can improve his outcome by changing only his own strategy

E

In the long run, a monopolistically competitive firm will produce too little output to minimize average cost. Therefore, it will have a. positive economic profit b. negative economic profit c. excess profit d. X-inefficiency e. excess capacity

E

In the long run, monopolistically competitive firms earn zero economic profits because a. each firm produces a small share of total market output b. each firm produces a standardized product c. firms do not equate marginal cost and marginal revenue in the long run d. there is only one seller in the market e. entry of new firms eliminate profits

E

Of the following markets, which is most likely to be monopolistically competitive? a. automobiles b. corn c. overnight package delivery d. air travel between a small city and a larger one e. fast food

E

The firm in Figure 11-2 is monopolistically competitive. The diagram illustrates a a. shut-down case b. long-run economic loss c. short-run economic loss d. long-run economic profit e. short-run economic profit

E

The minimum efficient scale for the firm in Figure 11-11 a. is less than Q1 b. is Q1 c. is Q2 d. is Q3 e. cannot be determined from this graph

E

The model of monopolistic competition assumes that a. there are only a few sellers b. there are significant barriers to exit c. each firm charges the same price for its output d. the buyers are price setters e. firms are strategically independent

E

The prisoner's dilemma demonstrates that a. breaking out of prison may be too costly for most prisoners b. the opportunity cost of being a prisoner is indeterminate c. the dominant strategies followed by two prisoners may lead to disequilibrium that is unpredictable d. the weak strategy may be followed by both prisoners if the opportunity cost is low e. the dominant strategies followed by two players may lead to an equilibrium that is less not optimal for both players together

E

We can predict the outcome of a two-player game as long as a. each player follows a strategy that negates the other player's strategy b. at least one player has a bilateral strategy c. neither player has a subsistence strategy d. neither player has a dominant strategy e. at least one of the players has a dominant strategy

E