Calhoun Final Exam

When oligopolistic firms collude to maximize their joint profits, in comparison with the situation in competitive markets, their actions generally lead to

a smaller output and higher prices.

Which of the following explains why monopoly is uncommon in the real world?

There are reasonable substitutes for most goods.

the marginal revenue of a price taker is

equal to price

A contestable market is a market

in which the costs of entry and exit are low.

A firm in a price-taker market

must take the price that is determined in the market.

In a price-taker market, economic losses indicate that

some firms have miscalculated, producing goods that are less valuable than the resources used to make them.

Which of the following is a necessary condition for price discrimination to be profitable?

Groups of consumers with different demand elasticities must be easily distinguishable.

If a contestable market has only one seller, which of the following will keep the seller from producing inefficiently and charging a price that generates long-run economic profits?

Low costs of entry into and exit from the market.

Which of the following is a unique characteristic of the oligopolistic market structure?

Mutual interdependence among firms in demand, and thus, in price decisions

Which of the following would be most likely if firms in a competitive price-searcher market were earning economic profit?

New firms would enter the market, resulting in fewer sales by existing firms.

Which of the following is characteristic of a firm that is a competitive price searcher?

The firm produces a differentiated product.

Suppose the equilibrium price in a competitive price-taker market is $10 and a firm in the industry charges $9. Which of the following is true?

The firm will make less profit than it could at the $10 price.

Which of the following is true for firms that produce in markets where there are no barriers to entry?

The firms will always make zero economic profits in the long run.

As new firms enter a competitive price-searcher market, profits of existing firms

decline and product diversity in the market increases

The exit of existing firms from a competitive market will

decrease market supply and increase market prices.

A monopoly is most likely to emerge in a market when

economies of scale are large relative to market demand

In a market economy, profits

encourage productive projects and losses weed out unproductive ones

The traditional view of competitive price-searcher markets holds that this type of market structure is inefficient because

excessive advertising is encouraged.

When new firms enter a competitive price-taker market,

existing firms may see their costs rise as more firms compete for limited resources.

The term price searcher applies to all firms that

face a downward-sloping demand curve.

It is difficult to predict the behavior of oligopolistic firms because

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

Competitive price-taker markets are characterized by

firms that all produce the same product.

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

have a negligible impact on the market price.

In order for effective price discrimination to occur, a seller must

have at least two distinguishable groups of consumers.

Monopolists may be able to earn profit, even in the long run, as the result of

high barriers to entry.

A profit-maximizing monopolist that produces in the short run will

increase output as long as the marginal revenue exceeds the marginal cost of producing that unit

if a firm competing in a price-taker market seeks to maximize profit, the firm should

increase output whenever price exceeds marginal cost

The difficulty in analyzing oligopolistic behavior arises from the

interdependent nature of oligopolistic decisions.

When an economist states that a firm is earning zero economic profit, this statement implies that the firm

is doing as well as it could in any other line of business.

When members of an oligopolistic industry agree to collude, raising their product price substantially above average cost, the passage of time (months and years)

is likely to erode the agreement, as ways to cheat are developed by some participants and new entry is encouraged by the high price.

a competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

it is covering all costs, including the opportunity cost of capital and labor

The U.S. Postal Service has a monopoly on the delivery of first-class mail due to

legal barriers limiting entry

If a firm in a competitive price-searcher market raises its price, it will

lose only some of its sales.

The incentive for managers of a government-operated firm (for example, a state university or the U.S. Post Office) to operate efficiently will be

low because there are no residual claimants to monitor and institute cost-reducing measures.

If zinc suppliers are successful in forming an international zinc cartel, they will

lower output, raise prices, and have a need to prevent the entry of new firms into the industry.

if long-run equilibrium is present in a competitive market, the typical firm in the market will be

making zero economic profit

A competitive price-searcher market is best described as

many firms with some control over price, and some product differentiation

In a competitive price-taker market,

many other sellers are offering a product that is essentially identical.

Which of the following is a characteristic of a contestable market?

minimum-cost production methods

Which of the following is a term that is sometimes used to describe markets with low entry barriers and firms that are price searchers?

monopolistic competition

When a single firm has control over the market supply of a resource that is essential to the production of a good,

monopoly is frequently the result

A market situation where a small number of sellers compose the entire industry is called

oligopoly.

competitive price-taker firms respond to changing market conditions by varying their

output

A practice whereby a seller charges different prices to different consumers of the same product or service is called

price discrimination

The main difference between a firm that is a price searcher and a firm that is a price taker is that a

price searcher will still be able to sell some of its product if it increases its price.

Firms that can choose what price they will charge for their product and can increase the number of units sold by reducing price are called

price searchers.

If profit-seeking entrepreneurs are going to be successful, they must

produce a product that the consumers value more than the resources required for its production.

A monopolist will maximize profits by

producing the output where marginal revenue equals marginal cost.

the intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

profit is maximized

As new firms enter a competitive price-searcher market, it can be expected that

profits of existing firms will decrease

In order to be successful in a competitive market economy, an entrepreneur must

provide buyers at least as much satisfaction per dollar spent as the buyer could get elsewhere.

the dynamic process of competition

provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers

If a firm in a competitive price-searcher market finds that its marginal cost exceeds its marginal revenue at the current rate of output, it should

raise the price of the product and reduce its output

when the marginal cost of a price-taker firm is more than the market price of its product, the firm should

reduce output

In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will

reduce output and raise price.

If marginal cost exceeds marginal revenue, a profit-maximizing firm should

reduce output until marginal cost equals marginal revenue.

In an oligopolistic market, if rival sellers act independently, each will have a strong incentive to

reduce price in order to increase sales and gain a larger share of the total market.

Losses are important to a competitive price-searcher market (industry) because they send a message to the market participants that

resources can rise in value if diverted away from that particular industry.

As firms exit a competitive price-searcher market, profits of remaining firms

rise and product diversity in the market decreases

A firm that is a price taker can

sell all of its output at the market price.

When a firm exits a competitive price-searcher market, the individual demand curves faced by all remaining firms in that market will

shift to the right.

When entry barriers into a market are low, firms will tend to earn zero economic profit in the long run because

short-run profit attracts additional suppliers and drives down the market price.

If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should

shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs) during the winter shutdown period.

One of the effects of patents is to

temporarily provide the patent owner with monopoly power.

If government officials break a natural monopoly up into several smaller firms, then

the average costs of production will increase.

Which of the following factors is least likely to be a barrier limiting the entry of potential competitors into a market?

An inelastic demand for a product.

Suppose a market is initially competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, which of the following would be expected?

A decrease in market output and an increase in the price of the product.

Which of the following about price discrimination is true?

A price-discriminating seller will charge consumers with an elastic demand a lower price than consumers with an inelastic demand.

Which of the following is necessary for the presence of competition in a market?

Low barriers to entry into the market.

Which of the following is always true in competitive price-taker markets?

Barriers to entry into the market are low.

An organization of sellers designed to coordinate their supply decisions to maximize joint profits is called a

cartel.

Which of the following constitutes a barrier limiting the entry of potential competitors into a market?

Control over an essential resource.

A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do in order to increase profit?

Decrease output.

Which of the following is true of entrepreneurship?

Entrepreneurial discovery is an important source of economic growth and higher living standards.

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?

In the short run, economic profits would be earned by the earliest firms adopting the technology.

Which of the following is a characteristic of an oligopolistic industry?

Interdependence of a firm's price and output decisions

Collusion

It involves cooperative actions by sellers at the expense of buyers.

Under which one of the following market structures are sellers most likely to consider the reaction of rival sellers when they set the price of their product?

Oligopoly.

What problem does the government have that makes price regulation less than an ideal solution?

Regulators frequently will not have the information they need to set prices.

Which of the following variables is left out of the simple economic model of the firm?

The entrepreneurial decision-making process.

Which of the following is not a characteristic of a competitive price-searcher market?

The entry barriers are high.

Which of the following is a characteristic of a competitive price-taker market?

There are many firms in the market, each producing a small share of total market output.

A major fruit juice manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. What is the most likely explanation for this failure?

There was nothing to prevent the students from reselling the fruit juice to other consumers

Patents grant their owners

a property right to new products and production processes that they have developed.

Price discrimination occurs when

a seller charges different prices to different consumers for the same product or service.

In some industries where firms experience declining average total costs over the full range of output that consumers are willing to buy,

a single large firm will develop, and it will have cost advantages that protect it from potential rivals.

Cartel agreements are difficult to maintain because individual members

are often unable to police the price and output policies of other members.

Firms that are price takers

are small relative to the total market.

A monopolist will earn economic profits as long as price exceeds

average total cost

A law that requires hairdressers to undergo many hours of training and acquire a license before they can offer haircuts to the public is an example of a

barrier to entry.

New York City limits the number of taxi cabs that can legally operate in the city. The most likely result of this practice is that

cab fares will be higher.

A natural monopoly is defined as an industry in which one firm

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

If a profit-maximizing restaurant is going to increase its revenues by charging senior citizens (persons age 65 and over) lower prices than other customers,

the demand of senior citizens for the services of the restaurant must be elastic.

Airlines generally charge travelers willing to stay over Saturday night lower fares because

the demand of these travelers is elastic, and therefore, the lower fares generate more revenue

Suppose that competitive price-searcher firms are experiencing losses. In the transition from this initial situation to a long-run equilibrium,

the number of firms in the market decreases.

When price is greater than marginal cost for a firm in a competitive market,

there are opportunities to increase profit by increasing production.

The owners of a firm are earning economic profit if

they are earning a return on their capital that is higher than what can generally be earned in other markets.

Competition as a dynamic process implies that individual firms in a market

use price competition as well as other forms of competition to gain the dollar votes of consumers.

Competition as a dynamic process implies that the individual firms in an industry

utilize a variety of techniques, such as product, style, and price, to win the dollar votes of consumers.

Price discrimination refers to a system of pricing

where consumer groups with a more elastic demand for the product are charged lower prices.