Microeconomics Test 4 (Final Exam)

Results of the study done by Lee Benham on advertising for eyeglasses would suggest that

optometrists would enthusiastically endorse advertising restrictions.

Many economists criticize monopolists because they

produce less than the socially efficient level of output.

As the number of firms in an oligopoly increases,

the total quantity of output produced by firms in the market gets closer to the socially efficient quantity.

In a competitive market, the actions of any single buyer or seller will

have a negligible impact on the market price.

Refer to Figure 15-14. To maximize total surplus, a benevolent social planner would choose which of the following outcomes?

Q=45 and P=45

Critics of advertising argue that advertising

All of the above are correct.

A firm is a price taker

only when the market is perfectly competitive.

Refer to Figure 15-16. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to

$1,562.50

Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

$1,000

Refer to Figure 15-17. The consumer surplus at the monopolist's profit-maximizing price is

$450

Refer to Table 17-10. If the market for gasoline in Driveaway is a monopoly, then the monopolist's maximum profit is

$450

Refer to Table 17-6. Suppose the market for this product is served by two firms that have formed a cartel. If the marginal cost of production is $4 and the fixed cost is $6, the combined profit of the cartel will be

$6

A firm's marginal cost has a minimum value of $50, its average variable cost has a minimum value of $80, and its average total cost has a minimum value of $90. Then the firm will shut down once the price of its product falls below

$80

Refer to Table 15-6. What is the marginal revenue from the sale of the 2nd unit?

$9

Refer to Table 17-3. If there is only one digital cable TV company in this market, what price would it charge for a premium digital channel subscription to maximize its profit?

$90

When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are) best demonstrated? (i) Fixed costs are sunk in the short run. (ii) In the short run, only fixed costs are important to the decision to stay open for lunch. (iii) If revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch.

(i) and (iii) only

If firms in a particular market similar or sell identical products, then the market is (i) perfectly competitive. (ii) monopolistically competitive. (iii) an oligopoly.

(i) or (iii) only

Refer to Figure 15-8. To maximize its profit, a monopolist would choose which of the following outcomes?

100 units of output and a price of $20 per unit

Refer to Figure 14-9. If at a market price of $1.75, 52,500 units of output are supplied to this market, how many identical firms are participating in this market?

300

Refer to Table 16-1. What is the concentration ratio in Industry Z?

62%

Refer to Table 15-18. If the monopolist can engage in perfect price discrimination, what is the quantity that maximizes economic profit?

7 ties

If Cathy's Coffee Emporium sells its product in a competitive market, then

Cathy's Coffee Emporium's total revenue must be proportional to its quantity of output.

A firm that has little ability to influence market prices operates in a

Competitive Market

Which of the following statements is correct?

Firms can easily enter a perfectly competitive or monopolistically competitive industry.

Of the following market structures, which are considered imperfectly competitive? I. Perfect competition II. Monopoly III. Monopolistic competition IV. Oligopoly

III and IV

Susan quit her job as a teacher,

In the short run, Susan should continue to operate her business, but in the long run she will probably face competition from newly entering firms.

Refer to Table 17-19. If grocery store 2 sets a low price, what price should grocery store 1 set? And what will grocery store 1's payoff equal?

Low price, $500

Refer to Table 17-19. If grocery store 1 sets a high price, what price should grocery store 2 set? And what will grocery store 2's payoff equal?

Low price, $800

Which of the following statements is not correct? (Monopolistic)

Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry.

Refer to Table 17-12. Pursuing its own best interests, the U.S. will renew MFN status with Farland

None of the above is correct. In pursuing its own best interests, the United States will in no case renew MFN status with Farland.

Refer to Figure 14-2. Which of the four prices corresponds to a firm earning zero economic profits in the short run?

P2

Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run and shutting down?

P4

Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

P4

Refer to Figure 15-3. Profit will be maximized by charging a price equal to

P4

Refer to Figure 15-3. If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to

Q2

Two CEOs from different firms in the same market collude to fix the price in the market. This action violates the

Sherman Antitrust Act of 1890.

Refer to Figure 16-9. When the firm is maximizing profit,

TR = $14,000 and TC =$16,000.

Which of these situations produces the largest profits for oligopolists?

The firms reach the monopoly outcome.

Which of the following statements is not correct?

The government may break up a natural monopoly to lower the price charged to customers.

In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and bad for society?

Two airlines dominate air travel between City A and City B, and each airline decides whether to charge a "high" airfare or a "low" airfare on flights between those two cities.

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is

a bad outcome for both players.

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then

a one-unit increase in output will increase the firm's profit.

Which of the following firms is the closest to being a perfectly competitive firm?

a wheat farmer in Kansas

Barb and Sue are competitors in a local market.

advertise on TV and earn $5,000.

Refer to Table 16-3. What is the concentration ratio for Industry D?

approximately 60%

As a group, oligopolists would always be better off if they would act collectively

as a single monopolist.

A monopolist will choose to increase output when

at the present level of output, marginal revenue exceeds marginal cost.

In the long-run equilibrium of a competitive market, the number of firms in the market adjusts until the market demand is satisfied at a price equal to the minimum of

average total cost of the marginal firm.

Profit-maximizing firms enter a competitive market when existing firms in that market have

average total costs less than market price.

If duopolists individually pursue their own self-interest when deciding how much to produce, the amount they will produce collectively will

be greater than the monopoly quantity.

A monopoly's marginal cost will

be less than the price per unit of its product.

When the prisoners' dilemma game is generalized to describe situations other than those that literally involve two prisoners, we see that cooperation between the players of the game

can be difficult to maintain, even when cooperation would make both players of the game better off.

In the short run, a firm operating in a monopolistically competitive market

can earn zero economic profits.

When a profit-maximizing firm's fixed costs are considered sunk in the short run, then the firm

can safely ignore fixed costs when deciding how much output to produce.

As a group, oligopolists would always earn the highest profit if they would

charge the same price that a monopolist would charge if the market were a monopoly.

Entry by new firms into a monopolistically competitive market

creates additional consumer surplus.

Which of the following industries is most likely to exhibit the characteristic of free entry?

dairy farming

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

does not change

If we observe a great deal of advertising of dog food, we can infer that

dog food is a highly-differentiated product.

In a market characterized by monopoly, the market demand curve is

downward sloping.

When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that

each firm has less market power.

Refer to Figure 16-4. Panel a shows a profit-maximizing monopolistically competitive firm that is

earning zero economic profit.

One characteristic of an oligopoly market structure is:

firms in the industry have some degree of market power.

Patent and copyright laws are major sources of

government-created monopolies.

As the number of firms in an oligopoly market

increases, the market approaches the competitive market outcome.

A lack of cooperation by oligopolists trying to maintain monopoly profits

is desirable for society as a whole.

Monopolistic competition is an inefficient market structure because

it has a deadweight loss, just as monopoly does.

When a market is monopolistically competitive, the typical firm in the market can earn

losses in the short run and zero profit in the long run.

Monopolistically competitive firms have excess capacity. To maximize profits, firms will

maintain the excess capacity.

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should

make fewer than 20 wedding cakes per month.

Most businesses advertise their products and services. Some business use SPAM emails to advertise because the cost of a mass e-mail is close to zero. Other business spend millions of dollars to advertise in a 30-second spot during the Super Bowl. Having observed this real world data, economists argue that the amount of money that a business spends on advertising is a proxy for a good or service's

quality

Refer to Figure 17-2. In pursuing his own self-interest, Bart will

refrain from cleaning whether or not Hector cleans.

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

shut down in both the short run and long run.

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called

sunk costs

Due to the nature of the patent laws on pharmaceuticals, the market for such drugs

switches from monopolistic to competitive once the firm's patent runs out.

In a game, a dominant strategy is

the best strategy for a player to follow, regardless of the strategies followed by other players.

Consider a game of the "Jack and Jill" type in which a market is a duopoly and each firm decides to produce either a "high" quantity of output or a "low" quantity of output. If the two firms successfully reach and maintain the cooperative outcome of the game, then

the combined profit of the firms is maximized but total surplus is not maximized.

According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that

the content of the advertisement is irrelevant.

One problem with government operation of monopolies is that

the government typically has little incentive to reduce costs.

Refer to Figure 17-4. Suppose the outcome of the game is one in which Acne's profit is $2 million and Bilco's profit is $7 million. The most likely explanation for this outcome is that

the two companies reached an agreement on what price to charge, and Bilco subsequently cheated.

If we observe a great deal of advertising of men's shaving products, we can infer that

those products are highly differentiated.

Refer to Figure 16-3. Assume the firm in the figure is currently producing 10 units of output and charging $600. The firm

will increase its profits if it raises its prices and expands its production level.

Refer to Figure 14-2. If the market price is P2, in the short run the firm will earn

zero economic profits.

Refer to Table 15-7. What is total profit at the profit-maximizing quantity?

$265

A firm in a competitive market has the following cost structure: Output Total Costs 0 $1 1 $6 2 $9 3 $10 4 $17 5 $26

$3

Refer to Figure 15-16. If there are no fixed costs of production, monopoly profit without price discrimination equals

$3,125

Refer to Scenario 15-3. At Q = 500, the firm's marginal cost is

$30

Which of the following statements is correct? (oligopoly)

When oligopoly firms collude, they are behaving as a cartel.

For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

marginal cost curve

One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where

marginal cost equals price, while a monopolist produces where price exceeds marginal cost.

Marginal revenue can become negative for

monopoly firms but not for competitive firms.

Refer to Figure 17-2. If this game is played only once, then the most likely outcome is that

neither Hector nor Bart cleans.

Refer to Table 17-20. If Nadia chooses to clean, then Maddie will

not clean, and Maddie's payoff will be 50.

A firm produces the welfare-maximizing level of output

only when the market is perfectly competitive.

A monopolistically competitive firm has the following cost structure: If the government forces this firm to produce at its efficient scale, it will

produce 5 units and lose $5.

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level.

If there is an increase in market demand in a perfectly competitive market, then in the short run

profits will rise

Suppose that monopolistically competitive firms in a certain market are experiencing losses. In the transition from this initial situation to a long-run equilibrium,

the number of firms in the market decreases.

In markets characterized by oligopoly,

the oligopolists earn the highest profit when they cooperate and behave like a monopolist.

When new firms enter a perfectly competitive market,

the short-run market supply curve shifts right.