Davey Brown-ECON 102 Final: QUESTIONS

Which of the following goods is likely to have the most elastic demand, and why?

Gas(sensitive to price change)

Using incentives, how could we get someone to change their behavior?

Positive Incentive- Reward to increase positive behavior Negative Incentive- Punishment to decrease negative behavior

The demand curve has a _________ slope. A change in _________ will cause a movement along the demand curve, and a change in _________ will cause the demand curve to shift.

1) Downward/Negative 2) Price 3) Substitutes

By reducing the product compatibility of iPod, Apple can lower the price elasticities of demand for A. Apple products that are complementary to the iPod. B. Apple products that are substitutable to the iPod. C. products by other firms that have a positive network effects. D. products that are not related to the iPod.

A-Apple products that are complementary to the iPod.

Entry into a monopolistically competitive industry A. is relatively easy. B. is very difficult. C. can be easy or difficult, depending on the type of product. D. is about the same as entering a monopoly industry.

A- is relatively easy.

Suppose that an industry consists of 100 firms, and the top 4 firms have annual sales of $1 million, $1.5 million, $2 million, and $2.5 million, respectively. If the entire industry has annual sales of $8.5 million, the four-firm concentration ratio is approximately A. 82 percent. B. 50 percent. C. 94 percent. D. 70 percent.

A-82 percent.

What does it mean when the products sold by the firms in an industry are homogeneous? A. The product sold by one firm is a perfect substitute of the product sold by another firm in the same industry. B. Firms in the industry can produce the same product with different inputs. C. All firms in the industry are identical in size. D. The product sold by one firm is a perfect complement of the product sold by another firm in the same industry.

A-The product sold by one firm is a perfect substitute of the product sold by another firm in the same industry.

Which of the following products is most likely to be sold in a monopolistically competitive market? A. fast food B. coal C. wheat D. electricity

A-fast food

The monopolist determines the price and quantity combination that maximizes short-run profits by A. finding the quantity at which marginal cost and marginal revenue are equal and then using the demand curve to find price. B. determining the price by finding the highest price at which sales can be made and then using the demand curve to find the appropriate quantity. C. finding the point at which marginal revenue and demand intersect. This gives the price and quantity that maximizes profits. D. finding the quantity at which average revenue and average total cost are furthest apart.

A-finding the quantity at which marginal cost and marginal revenue are equal and then using the demand curve to find price.

For a firm in a perfectly competitive industry, the demand curve for its own product is A. horizontal. B. vertical. C. upward sloping. D. downward sloping.

A-horizontal.

Surge pricing is when firms _____ price due to __________. A. increase; an increase in demand B. increase; an increase in production costs C. decrease; an increase in supply D. decrease; a competitor offering a lower price

A-increase; an increase in demand

Clothing retailers have faced greater competition in recent years as more firms have entered the clothing market. Some of the competition has come from foreign competitors, but much of it is domestic competition. As a result there is much competition in markets for many types of clothing and A. individual buyers and sellers cannot affect the market price because it is determined by the market forces of demand and supply. B. there are no other implications. C. firms have a great degree of flexibility in pricing their products because these products can be sold at a high profit level. D. there are relatively few buyers and sellers in the market, and one individual firm can determine the market price.

A-individual buyers and sellers cannot affect the market price because it is determined by the market forces of demand and supply.

Perfect competition is characterized by A. many buyers and sellers. B. a small number of firms. C. differentiated products of firms in the industry. D. high barriers to entry.

A-many buyers and sellers.

To be able to engage in profit-maximizing price searching, a monopoly firm must be able to A. prevent the entry of other firms into the market for its product. B. induce the entry of other firms into the market for its product. C. avoid earning negative economic profits in the short run. D. always earn zero economic profits.

A-prevent the entry of other firms into the market for its product.

Monopolistic competition is characterized by A. relative ease of entry into the market. B. a standard, undifferentiated product. C. persistent long-run economic profits. D. production at minimum average cost in the long run.

A-relative ease of entry into the market.

Firms in a monopolistically competitive market will advertise because A. they want to differentiate their products. B. they want to increase the elasticity of the demand curve. C. of the significant differences in their product over their competitors. D. the elasticity for their product is inelastic.

A-they want to differentiate their products.

Suppose the inverse demand function for a monopoly is given by P = 300 - 2Q. What is the firm's marginal revenue function? A. MR = 300 - 4Q B. MR = 600 - 4Q C. MR = 300 - Q D. MR = 600 - Q

A. MR = 300 - 4Q (Relationship between MR/MC... MR= Same Yint 2-times slope)

In a long-run monopolistically competitive equilibrium, A. P = ATC, and ATC is not at its minimum value B. P = ATC, and ATC is at its minimum value C. P > ATC, and ATC is at its minimum value D. P > ATC, and ATC is not at its minimum value

A. P = ATC, and ATC is not at its minimum value

All of the following are characteristics of an oligopoly EXCEPT A. diseconomies of scale over all ranges of output B. small number of firms C. high barriers to entry D. interdependence

A. diseconomies of scale over all ranges of output

Advertising by monopolistically competitive firms can do all of the following EXCEPT.. A. lower the price of the good B. help differentiate a firm's product C. give the consumer information about the firm's products D. result in increased profits for the advertising firm

A. lower the price of the good

If total revenue increases when a firm sells more units, then marginal revenue is A. positive B. negative C. zero

A. positive

A vertical merger involves.. A. the joining of two firms at different stages of the production process for a single good B. the separation of management from ownership C. the joining of two firms selling similar products D. the exchange of debt for stock E. a decision by a firm to become a publicly traded company

A. the joining of two firms at different stages of the production process for a single good

A pure monopolist is selling 7 units at a price of $12. If the marginal revenue of the 8th unit is $4, then the price of the 8th unit is A. $10. B. $11. C. greater than $12. D. $4.

B-$11

Suppose an industry has total sales of $25 million per year. The two largest firms have sales of $6 million each, the third largest firm has sales of $2 million, and the fourth largest firm has sales of $1 million. The four-firm concentration ratio for this industry is A. 36 percent. B. 60 percent. C. 50 percent. D. 25 percent.

B-60 percent.

Which of the following is an example of a vertical merger? A. Northeastern Illinois University merging with McDonald's. B. Northeastern Illinois University merging with a training academy for new professors. C. Northeastern Illinois University merging with Roosevelt University. D. Northeastern Illinois University going from a public to a private university.

B-Northeastern Illinois University merging with a training academy for new professors.

Which of the following is NOT a barrier to entry that would allow a monopolist to keep potential competitors out of its market? A. Significant economies of scale exist. B. The market price of the product is too high. C. The firm has a patent on the good or control over some resource required for the production of the good. D. The firm has government authorization to be a monopoly.

B-The market price of the product is too high.

A situation where a consumer's willingness to use an item depends on how many others use it is A. a positive-sum game. B. a network effect. C. price-leadership. D. a vertical merger.

B-a network effect.

When managers in oligopolistic firms make decisions that affect output or price, they must A. also be sure they erect barriers to entry to prevent new entrants from affecting their plans. B. anticipate the reactions of their rivals and plan accordingly. C. register with the Antitrust Division of the Department of Justice. D. inform the regulators of their industry about their plans.

B-anticipate the reactions of their rivals and plan accordingly.

Products can be differentiated A. if the buyers are homogeneous and their number increases. B. by location and by brand name. C. only by brand name. D. none of the above

B-by location and by brand name.

A price taker is a firm that A. seeks to maximize revenue rather than profit. B. cannot influence the market price. C. searches for the best price and then takes the highest profits possible. D. buys inputs for firms.

B-cannot influence the market price.

The measurement of industry concentration which calculates the percentage of all sales contributed by a specific number of leading firms is called the A. Herfindahl-Hirschman Index. B. concentration ratio. C. producer price index. D. P/E ratio.

B-concentration ratio.

The demand curve for a perfectly competitive industry is A. perfectly elastic. B. downward sloping. C. perfectly inelastic. D. unit elastic.

B-downward sloping.

The most common reason for the existence of oligopolies is A. ease of entry. B. economies of scale. C. diseconomies of scale. D. advertising.

B-economies of scale.

An industry battle between incompatible product formats can occur if competing firms selling compatible products A. take into account network effects. B. fail to take into account network effects. C. take into account economies of scale. D. fail to take into account economies of scale.

B-fail to take into account network effects.

Firms with __________ will not change prices very often. A. low menu costs B. high menu costs C. price leadership D. large network effects

B-high menu costs

All of the following are assumptions of monopolistic competition EXCEPT A. many buyers and sellers. B. homogeneous product. C. easy entry of new firms in the long run. D. profit-maximizing behavior.

B-homogeneous product.

A merger between firms that are in the same industry is called a A. conglomerate merger. B. horizontal merger. C. vertical merger. D. none of the above.

B-horizontal merger.

The distinguishing of products by brand name, color, and other attributes A. is known as interdependence. B. is known as product differentiation. C. leads to many firms in the market. D. leads to collusion.

B-is known as product differentiation.

A monopoly will look for opportunities to price discriminate because the practice A. leads to selling more units. B. leads to greater profits. C. allows it to charge higher prices. D. is desired by customers.

B-leads to greater profits.

Since the firm in the above figure is operating in a monopolistically competitive industry, in the long run we can expect to see A. the typical firm's economic profits expand as production becomes more efficient. B. more firms entering the industry until economic profits are zero. C. the typical firm producing at the minimum point on its ATC curve. D. each firm expand its share of the total market.

B-more firms entering the industry until economic profits are zero.

To sell more units, a monopolist A. simply moves across its horizontal demand curve to a larger quantity. B. moves down its demand curve to a lower price that will increase quantity demand. C. can continue to receive the same price it always has as long as it has its customers' goodwill. D. must be willing to lower the barriers to entry that have protected it.

B-moves down its demand curve to a lower price that will increase quantity demand.

Which of the following is NOT a cause for an oligopoly to exist? A. economies of scale B. structural dependence C. barriers to entry D. horizontal mergers

B-structural dependence

The major similarity between monopolistic competition and perfect competition is A. the shape of the demand curve. B. that both assume many buyers and sellers. C. price equals marginal revenue in each. D. both assume products are differentiated.

B-that both assume many buyers and sellers.

Product compatibility is A. the capability of a product sold by one firm to compete with another firm's product. B. the capability of a product sold by one firm to function together with another firm's complementary product. C. the sensitivity of the price of one product is to the change of the price of another product. D. how much one product can be substituted for another product.

B-the capability of a product sold by one firm to function together with another firm's complementary product.

The perfectly competitive firm cannot influence the market price because A. it has market power B. its production is too small to affect the market C. the government determines a legal price D. its costs are too high

B. its production is too small to affect the market

A profit-maximizing monopolist earns an economic loss whenever A. it pays taxes to the government on each unit of output it produces. B. the price it charges for its product exceeds average total cost. C. the demand curve lies completely below the ATC curve. D. it produces along the elastic portion of a demand curve.

C the demand curve lies completely below the ATC curve.

If a firm is an oligopolist, which is NOT true? A. It must pay attention to other firms' prices. B. It is one of a relatively small number of firms dominating its industry. C. It can sell all the units it wants at the going market price. D. It is engaged in a strategic game.

C- It can sell all the units it wants at the going market price. D. It is engaged in a strategic game.

Which of the following is NOT a characteristic of a perfectly competitive market? A. The products sold by the firms in the market are homogeneous. B. There are many buyers and sellers in the market. C. It is difficult for a firm to enter or leave the market. D. Each firm is a price taker.

C-It is difficult for a firm to enter or leave the market.

Which of the following is true of a perfectly competitive firm and a monopoly in the long run? A. P = MC B. P = ATC C. MR = MC D. P = MR

C-MR = MC

Which of the following is an example of a horizontal merger? A. Northeastern Illinois University merging with McDonald's. B. Northeastern Illinois University merging with a training academy for new professors. C. Northeastern Illinois University merging with Roosevelt University. D. Northeastern Illinois University going from a public to a private university.

C-Northeastern Illinois University merging with Roosevelt University.

Which of the following does NOT help explain why oligopolies exist? A. Economies of scale B. Mergers C. Product homogeneity D. Barriers to entry

C-Product homogeneity

Which of the following statements about the elasticity of demand for a monopolist is TRUE? A. Since a monopolist produces a good with no close substitutes, the price elasticity of demand for the good is zero. B. A monopolist produces a good with demand that is perfectly inelastic because people can not do without the good. C. Since every good has some substitute, even if imperfect, the demand for a good produced by a monopolist will not have zero price elasticity. D. Since the demand curve of a monopolist is downward sloping, the demand for the good must be inelastic.

C-Since every good has some substitute, even if imperfect, the demand for a good produced by a monopolist will not have zero price elasticity.

Which of the following is a characteristic of oligopoly? A. Easy entry and exit B. Many firms C. Strategic dependence D. None of the above

C-Strategic dependence

Which of the following statements is correct about the demand curve of the perfectly competitive industry? A. The demand curve of the perfectly competitive industry is horizontal as are the demand curves facing the individual firms. B. The market demand curve of perfect competition is vertical because the individual consumers are buying a homogeneous product. C. The market demand curve of the perfectly competitive industry is downward sloping while the demand curve facing an individual firm is horizontal. D. The market demand curve of the perfectly competitive industry is downward sloping, so the demand curves of the individual firms are also downward sloping.

C-The market demand curve of the perfectly competitive industry is downward sloping while the demand curve facing an individual firm is horizontal.

Which of the following statements is FALSE? A. Other things being equal, society's overall well-being is reduced when a perfectly competitive industry is monopolized. B. When both a perfectly competitive industry and a monopolist face the same production costs and the same market demand curve,the monopolist offers a lower level of output for sale. C. The profit-maximizing monopolist will always produce only along the inelastic portion of the demand curve, whereas equilibrium in a perfectly competitive industry always occurs along the elastic portion of the demand curve. D. When both a perfectly competitive industry and a monopolist face the same production costs and the same market demand curve, the monopolist charges a higher price for its product than what would be charged in a perfectly competitive situation.

C-The profit-maximizing monopolist will always produce only along the inelastic portion of the demand curve, whereas equilibrium in a perfectly competitive industry always occurs along the elastic portion of the demand curve.

Which of the following is NOT a characteristic of perfect competition? A. Firms are "price takers." B. All firms sell identical products. C. There are substantial barriers to entry into the industry. D. There are many buyers and sellers.

C-There are substantial barriers to entry into the industry.

Over the past several decades, U.S. firms have faced more competition from overseas firms. Does this have any impact on the market power of U.S. oligopoly firms? A. No, because domestic firms in oligopoly markets are always so dominant that overseas producers have little or no impact on those markets. B. No, because the United States government has effectively blocked all imports that might compete with domestic firms in oligopoly industries. C. Yes, competition from overseas firms can substantially limit domestic firms' market power. D. There is no way to know.

C-Yes, competition from overseas firms can substantially limit domestic firms' market power.

Monopolistic competition means A. monopolies from several countries compete in the global market. B. a large number of firms producing homogeneous products. C. a large number of firms producing differentiated products. D. few firms producing differentiated products.

C-a large number of firms producing differentiated products.

A monopolist is defined as A. a firm with annual sales over $10 million. B. a large firm, making substantial profits, that is able to make other firms do what it wants. C. a single supplier of a good or service for which there is no close substitute. D. a producer of a good or service that is expensive to produce, requiring large amounts of capital equipment.

C-a single supplier of a good or service for which there is no close substitute.

A monopolist's marginal revenue curve is A. the same as a perfectly competitive firm's marginal revenue curve. B. higher than the monopolist's demand curve. C. below the firm's demand curve. D. a horizontal line at the market price.

C-below the firm's demand curve.

When price and marginal cost are equal for a perfectly competitive firm, the firm is A. minimizing average total cost. B. maximizing total revenue. C. maximizing economic profit. D. earning negative economic profit.

C-maximizing economic profit.

Jane is on Facebook only because her friends are. This is A. price-leadership. B. negative-sum game. C. positive market feedback. D. negative market feedback.

C-positive market feedback.

All firms in a perfect competition industry A. are price makers. B. produce differentiated products. C. produce identical products. D. lose money.

C-produce identical products.

The demand curve for the product of a perfectly competitive firm's demand curve indicates that if the firm A. lowers its price, it can sell more. B. accepts the market-set price, the number of units the firm can sell is limited. C. raises its price, sales will fall to zero. D. changes its price, the quantity demanded will change in the opposite direction.

C-raises its price, sales will fall to zero.

In general, the demand for the product of a monopolistic competitor is A. unitary elastic. B. relatively inelastic. C. relatively elastic. D. perfectly elastic.

C-relatively elastic.

If a monopolist produces to a point at which marginal revenue is less than marginal cost then A. profits are being maximized. B. profits will always be negative. C. the incremental cost of producing the last unit exceeds the incremental revenue. D. the incremental cost of producing the last unit is less than the incremental revenue.

C-the incremental cost of producing the last unit exceeds the incremental revenue.

Joe's hotdog stand merges with a company that supplies the condiments to Joe's. This is an example of A. conglomerate merger. B. concentration ratio. C. vertical merger. D. horizontal merger.

C-vertical merger.

What is true about deadweight loss (DWL)? A. DWL is maximized when the market is in equilibrium B. DWL can only occur when producers intentionally sell at prices above the equilibrium price C. DWL is a sign of economic inefficiency D. DWL happens when consumers think prices are too high E. all of the above

C. DWL is a sign of economic inefficiency

In the long run equilibrium, monopolistic competition results in some deadweight loss because of fewer trades compared to perfect competition, and we also don't see productive efficiency due to slightly higher costs. Despite this, why might monopolistic competition still be desirable compared to perfect competition? A. When consumers are forced to spend more money on goods, the economy will be stimulated B. In monopolistic competition, firms have to fight harder for unique products and market share, and this will result in better products and supports the advertising industry C. The higher costs of monopolistic competition are likely the result of product differentiation, and consumers may prefer to have variety and choice and are willing to pay for it D. Entry barriers in monopolistic competition can be created by existing firms as a way to keep inferior products out of the market

C. The higher costs of monopolistic competition are likely the result of product differentiation, and consumers may prefer to have variety and choice and are willing to pay for it

For a monopolistically competitive firm, A. price equals marginal revenue at all levels of output B. price is less than marginal revenue at all levels of output C. price is greater than marginal revenue at all levels of output D. the demand curve is perfectly inelastic and marginal revenue is zero

C. price is greater than marginal revenue at all levels of output

One problem associated with a monopoly firm is that it... A. produces too little output but also charges a low price B. produces too much output and charges too low a price C. restricts output and charges a relatively higher price than a purely competitive industry D. is just as good as a purely competitive firm in terms of output and price but leaves consumers with fewer choices

C. restricts output and charges a relatively higher price than a purely competitive industry

Which of the following statements about concentration ratios is correct? A. A high concentration ratio indicates that the industry is a monopoly. B. A high concentration ratio indicates that the industry is monopolistically competitive. C. A high concentration ratio suggests that the industry is characterized by strategic independence. D. A high concentration ratio suggests that the industry is characterized by strategic dependence.

D-A high concentration ratio suggests that the industry is characterized by strategic dependence.

Which of the following is NOT a characteristic of a perfectly competitive industry? A. There is free entry and exit in the long run. B. The industry demand curve is downward sloping. C. Each firm produces the same homogeneous product. D. Economic profits must be positive in the short run.

D-Economic profits must be positive in the short run.

Considering the relevant market structures, which is an INCORRECT statement? A. In a perfectly competitive situation, there is an extremely large number of firms. B. In pure monopoly, there is only one firm. C. In monopolistic competition, there is a large number of firms. D. In any market situation, the number of firms is not very important.

D-In any market situation, the number of firms is not very important.

Which of the following is NOT a characteristic of monopolistic competition? A. A large number of sellers in a highly competitive market B. Differentiated products C. The existence of advertising D. Marginal cost pricing in the long run

D-Marginal cost pricing in the long run

For a monopoly earning positive economic profits at the profit-maximizing output level, all of the following are true EXCEPT A. P > ATC. B. P > MR. C. P > MC. D. P = MR.

D-P = MR.

A monopolistic competitor behaving in a profit-maximizing way will A. not advertise. B. advertise as much as it can in order to increase its sales. C. advertise to the point where the additional sales from advertising equal the additional marginal costs of the product. D. advertise to the point where the additional revenue from one more dollar of advertising just equals the extra dollar cost of advertising.

D-advertise to the point where the additional revenue from one more dollar of advertising just equals the extra dollar cost of advertising.

Price discrimination is more likely in the case of services than in the case of goods because A. producers of goods usually do not face downward sloping demand curves. B. it is easier to distinguish customers with different elasticities of demand with respect to services than with goods. C. elasticities of demand vary more with services than with goods. D. it is more difficult to resell services.

D-it is more difficult to resell services.

Which of the following is NOT a common characteristic of oligopoly? A. strategic dependence among firms in the industry B. product differentiation C. barriers to entry D. marginal cost pricing.

D-marginal cost pricing.

A market situation in which a large number of firms produce similar but not identical products is A. a collusive market structure. B. competitive monopoly. C. a homogeneous market. D. monopolistic competition.

D-monopolistic competition.

Monopoly producers face A. many competitors producing the same product. B. only a few competitors producing the same product. C. at least one competitive producer of the same product. D. no competitive producers of the same product.

D-no competitive producers of the same product.

The demand curve for the product of a perfectly competitive firm is A. downward sloping. B. upward sloping. C. perfectly inelastic. D. perfectly elastic.

D-perfectly elastic.

Price discrimination is the A. refusal by a firm to sell to all customers. B. selling of a given product at more than one price when the price differences reflect cost differences. C. pricing of a product so that not everyone can afford it. D. selling of a given product at more than one price when the price difference is unrelated to cost differences.

D-selling of a given product at more than one price when the price difference is unrelated to cost differences.

The demand for the product of a monopolistically competitive firm is highly elastic when A. firms collude. B. there are fewer firms in the industry. C. there is a lot of product differentiation. D. there are a lot of close substitutes.

D-there are a lot of close substitutes.

Why do cartels tend to be unstable and eventually fall apart? A. Consumers prefer to only buy goods produced in competitive markets, so they will not buy from the cartel, putting it out of business B. Cartels are given approval by current government officials, and future elected officials may not approve of the cartel C. Cartel behavior causes production costs to rise, which allows entry of new firms which will not join the cartel and be competitive D. Each firm has an incentive to cheat and go against the strategy that is best for the group, instead choosing a strategy that is best for themselves as an individual firm

D. Each firm has an incentive to cheat and go against the strategy that is best for the group, instead choosing a strategy that is best for themselves as an individual firm

Which of the following is FALSE about price discrimination? A. Different college students paying in-state vs. out-of-state tuition is considered price discrimination B. Price discrimination leads to higher profits compared to a firm charging a single price C. For price discrimination to be successful, there must not be an opportunity for consumers to arbitrage D. Firms in all four market structures can practice different kinds of price discrimination

D. Firms in all four market structures can practice different kinds of price discrimination

Which of the following conditions hold true for both the perfectly competitive firm and the monopoly at the profit-maximizing output level? A. MR = P B. MC = ATC C. MC = P D. MR = MC

D. MR = MC

Which of the following statements about the perfect competitor is INCORRECT? A. The perfectly competitive firm is always a price taker B. The perfect competitor sells a homogeneous commodity C. If an individual firm raises price, it will lose business D. The products made by a perfectly competitive firm have no close substitutes

D. The products made by a perfectly competitive firm have no close substitutes

When considering perfect competition, the absence of entry barriers implies that... A. no firm can enter the industry B. it costs $0 to start a new business in perfectly competitive markets C. all firms will earn economic profit D. firms can enter and leave the industry without serious impediments

D. firms can enter and leave the industry without serious impediments

All goods and services are scarce. What is the result of this?

Economists then need to allocate their resources by using wealth to do so.

Which of the following goods is likely to have the most inelastic demand, and why?

Insulin, food, and prescription drugs(Insensitive to price change)

Recall that the goal of the Affordable Care Act (also known as Obamacare) legislation was to get more people access to affordable health insurance. It was widely reported that health insurance premiums under Obamacare were getting much more expensive. What was the main factor causing the premiums to get more expensive? A. Many of the new enrollees were young teenagers unable afford their own insurance, so other people are paying for them B. The plan required a lot of paperwork and administrative tasks, and insurance companies had to hire a lot of people to get these tasks done C. The new enrollees were older and sicker than expected, increasing health care usage and expenses, causing costs and insurance premiums to rise D. Obamacare created new medical technologies which were expensive to use

The new enrollees were older and sicker than expected, increasing health care usage and expenses, causing costs and insurance premiums to rise