Eco Final Exam
The major difference between monopolistic competition and monopoly is
only a monopoly can earn an economic profit in the long run.
Cynthia is an Oklahoma wheat farmer. The demand for her wheat is
perfectly elastic.
If the price is less than a perfectly competitive firm's minimum average variable cost, the firm
shuts down and incurs an economic loss equal to total fixed cost.
If the HHI for the widget industry is 1,200, then the market structure is
monopolistic competition.
Which of the following fourminus−firm concentration ratios would be the best indication of a perfectly competitive industry?
2 percent
The table above shows the revenue figures for the top four firms along with a total for the remaining firms in the fastminus−food industry. What is the fourminus−firm concentration ratio for the industry?
20 percent
Which of the following fourminus−firm concentration ratios is consistent with monopolistic competition?
25 percent
What is the fourminus−firm concentration ratio if the four largest firms in an industry account for 5 percent, 6 percent, 7 percent, and 8 percent of total revenue?
26 percent
Computer memory chips are produced on wafers, each wafer having many separate chips that are separated and sold. The above table shows costs for a perfectly competitive producer of computer memory chips. If the market price of a wafer is $2,400 dollars, how many wafers will the firm produce?
4 or 5
Bill owns a lawnminus−care company in Windermere, Florida, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. At this price, how many lawns will Bill mow per week?
40
If there are four firms in an industry with market shares of 50 percent, 40 percent, 5 percent, and 5 percent, the Herfindahlminus−Hirschman Index is
4150.
Which of the following must exist for a firm to engage in price discrimination?
The firm must be able to identify and separate its buyers into different classes, and the lowminus−price buyers cannot resell the product to the highminus−price buyers.
Which of the following is a characteristic of monopoly?
There are barriers to enter the market.
A group of firms that has entered into an agreement to restrict output and increase prices and profits is called
a cartel.
What does monopolistic competition have in common with monopoly?
a downwardminus−sloping demand curve
If the technology for producing a good enables one firm to meet the entire market demand at a lower average total cost than two or more firms could, then that firm has
a natural monopoly.
A major characteristic of monopoly is
a single seller of a product.
A firm faces a small number of competitors. This firm is competing in
an oligopoly.
Sammy's Inc. competes with a few other firms because there are natural barriers to entry. Sammy's operates in
an oligopoly.
Collusion results when a group of firms i. act separately to limit output, lower prices, and decrease economic profits. ii. act together to limit output, raise prices, and increase economic profits. iii. in the United States legally fix prices.
ii only
A monopoly will arise if
the town council passes a law granting Nick's Pizza the exclusive right to operate in that town.
If a perfectly competitive wheat farmer is maximizing its profit and then increases its output, the farmer's
total revenue increases, but total cost rises by more so that the farmer's total profit decreases.
In the 1970s, when a gasoline price ceiling was imposed that was below the equilibrium price of gasoline, some gas stations required that buyers of gas also purchase other products sold at the station. This policy is an example of which of the following?
tying arrangements
The above figure shows a perfectly competitive firm. If the market price is $5 per unit, the firm
will definitely shut down to minimize its losses.
The above figure shows a perfectly competitive firm. If the market price is $15 per unit, the firm
will stay open to produce and will incur an economic loss.
The above figure shows a perfectly competitive firm. If the market price is $20 per unit, the firm
will stay open to produce and will make zero economic profit.
If both firms in a duopoly increase their production by one unit beyond the monopoly output, each firm's profit ________ and the total profit of the duopoly ________.
decreases; decreases
A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will ________ and eventually there will be ________.
fall; exit by existing firms
Entry and exit continue in monopolistic competition until the remaining firms are
earning zero economic profit.
The cranberry market is perfectly competitive. Reports that consuming cranberries can lead to improved health result in a permanent increase in the demand for cranberries and an immediate upward jump in the price of cranberries. As time passes, the price of cranberries ________ and the initial firms' economic ________.
falls; profit will be eliminated
Which of the following is a legal barrier to entry? i) public franchise ii) government license iii) patent
i, ii, and iii
If a duopoly has reached the monopoly outcome and only one firm increases its production, that firm's profit ________ and the other firm's profit ________.
increases; decreases
The above table has the total revenue and total cost schedule for Omar, a perfectly competitive grower of rutabagas. When Omar produces 2 bushels of rutabagas, his total profit equals
-$8
Which of the following statements about price discrimination is false?
All forms of price discrimination are illegal.
Which of the following is TRUE about a firm in monopolistic competition in the long run?
P = ATC
Which of the following is true of monopolistic competition in longminus−run equilibrium?
P = ATC and MR = MC
In the above figure, the output of an oligopoly will range between
Q1 and Q2.
Which of the following is an example of a natural monopoly?
Florida Power and Light, an electric utility in Florida
Which of the following statements is correct?
If firms in oligopoly look only at their own selfminus−interest in deciding the output they should produce, the total market output will exceed that of a monopoly.
The players in a game theory situation often do not act in their joint interest because of which of the following?
It is not in each player's selfminus−interest to cooperate.
When oligopolies seek to operate as a singleminus−price monopoly, the firms produce at the point where:
MR = MC.
If a firm, Best Computer Buys, requires its customers to buy software from it whenever the customers purchase a computer, the company's policy is called
a tying arrangement.
The women's dress industry is monopolistically competitive because each firm has
a very small market share.
A monopoly is
able to set the price for its product.
For the perfectly competitive broccoli producers in California, the market demand curve for broccoli is
downward sloping.
A Nash equilibrium is defined as
each player taking the best possible action given the action of the other player.
In monopolistic competition, profit is maximized by producing so that marginal revenue
equals marginal cost and which are less than price.
When firms in monopolistic competition incur an economic loss, some firms will
exit the industry, and demand will increase for the firms that remain.
Which of the following is the best example of a perfectly competitive market?
farming
If demand for a seller's product is perfectly elastic, which of the following is true? i. The firm will sell no output if it sets the price its product above the market price. ii. There are many perfect substitutes for the seller's product. iii. The firm will sell no output if it sets the price its product below the market price.
i and ii
Which of the following can be a barrier to entry? i. ownership of a necessary input ii. requiring a government license iii. large diseconomies of scale
i and ii
A natural monopoly's average cost curve i. intersects the demand curve while the average cost curve slopes downward. ii. reaches its minimum before it intersects the demand curve. iii. intersects the demand curve below the intersection of the marginal cost curve and the demand curve.
i only.
For a singleminus−price monopoly,
if marginal cost exceeds marginal revenue, profits will increase if output decreases.
Computer memory chips are produced on wafers, each wafer having many separate chips that are separated and sold. The above table shows costs for a perfectly competitive producer of computer memory chips. If the market price of a wafer is $2,400 dollars, the firm is
incurring an economic loss of $2,000 an hour.
If a firm shuts down, it
incurs an economic loss equal to its total fixed cost.
If the market price is $50 per unit for a good produced in a perfectly competitive market and the firm's average total cost is $52, then the firm
incurs an economic loss of $2 per unit.
Because economic profits are eliminated in the long run in monopolistic competition, to earn an economic profit firms continuously
innovate and develop new products.
During the winter, theme parks in Orlando close earlier than in the summer. The reason the theme parks close early during the winter is because during that season the marginal revenue from staying open later is ________ the marginal cost.
less than
Excess capacity exists when a firm produces
less than the quantity that minimizes average total cost.
Which of the following firms is most likely to be a monopoly?
local distributor natural gas
If a monopoly wants to sell a greater quantity of output, it must
lower its price.
The firm's supply curve is its
marginal cost curve above the average variable cost curve.
Suppose the Busy Bee Cafe is the monopoly producer of hamburgers in Hugo, Oklahoma. The above figure represents the demand, marginal revenue, and marginal cost curves for this establishment. If the Busy Bee produces 40 hamburgers per hour, then
marginal revenue will be negative.
For a perfectly competitive firm, profit maximization occurs when output is such that
marginal revenue (MR) = marginal cost (MC).
Bill owns a lawnminus−care company in Windermere, Florida, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. Bill's average total cost curve is ATC, so his total cost of production equals
more than $0 and less than $1,200 per week.
For a firm in monopolistic competition, innovation and product development are
necessary in order to have a chance of earning at least a shortminus−run economic profit.
A Nash equilibrium in the duopoly game
occurs when each player takes the best possible action regardless of the strategy chosen by other firms.
Game theory is used to analyze the interactions among firms in ________.
oligopoly
A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the
price is at least equal to the minimum average variable cost.
The above figure illustrates a perfectly competitive firm. If the market price is $40 a unit, to maximize its profit (or minimize its loss) the firm should
produce 40 units.
A firm in monopolistic competition makes its decisions on quantity and price by
producing where MR = MC and setting the price for this quantity from the demand curve.
If a monopoly wants to sell a larger quantity, it must
set a lower price.
A perfectly competitive market arises when
the market demand is very large relative to the output of one seller.
The above figure illustrates a perfectly competitive firm. If the market price is $10 a unit, to maximize its profit (or minimize its loss) the firm should
shut down.
One reason a company advertises is to
signal consumers that its product is high quality.
In an oligopoly, output is
somewhere between the output in monopoly and that in perfect competition outcomes.
A natural monopoly arises when
the longminus−run average cost curve slopes downward as it crosses the demand curve.
Which of the following is the best example of a natural monopoly?
the cable television company in your hometown
A monopoly produces a product ________ and there ________ barriers to entry into the market.
with no close substitutes; are
A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's total cost?
$1,000
A perfectly competitive firm is producing 50 units of output, which it sells at the market price of $23 per unit. The firm's average total cost is $20. What is the firm's total revenue?
$1,150
Computer memory chips are produced on wafers, each wafer having many separate chips that are separated and sold. The above table shows costs for a perfectly competitive producer of computer memory chips. This firm will produce as long as the market price of a wafer is above
$1,300.
The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. In the Nash equilibrium, Firm A will set a price of ________ and Firm B will set a price of ________.
$10; $10
The above table has the total revenue and total cost schedule for Omar, a perfectly competitive grower of rutabagas. When Omar maximizes his profit, Omar's profit equals
$16.
Suppose the Busy Bee Cafe is the monopoly producer of hamburgers in Hugo, Oklahoma. The above figure represents the demand, marginal revenue, and marginal cost curves for this establishment. What price will the Busy Bee charge to maximize its profit?
$3.00 for a hamburger
A singleminus−price monopoly can sell 10 units of its product at a price of $45 each but to sell 11 units, the monopoly must cut the price to $44. What is the marginal revenue of the extra unit sold?
$34
A singleminus−price monopoly has marginal revenue and marginal cost equal to $19 at 15 units of output where the price on the demand curve is $38. At this output, average total cost is $15. What is the total profit earned?
$345
The table above gives the demand for a monopolist's output. What is the marginal revenue when output is increased from 2 to 3 units?
$4
Gene's Car Wash is a natural monopoly. To wash 100 cars a week, if Gene is unregulated, he would charge a price of $10. Gene's average total cost for washing 100 cars is $8, his average variable cost is $6, and his marginal cost is $4. If Gene is regulated using a marginal cost pricing rule, the price he is allowed to charge to wash 100 cars is
$4.
The above figure shows a restaurant engaged in monopolistic competition with other restaurants. The equilibrium price at this restaurant is ________ per meal.
$50
Suppose Intel and AMD can each charge either $300 or $200 for a CPU (the computing unit of a computer). The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. If Intel charges $200 and AMD charges $300, then Intel's profit will be ________ million and AMD's profit will be ________ million.
$500; $100
Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. What price will Kevin charge per session?
$60
A singleminus−price monopoly can sell 2 units for $8.50 per unit. In order to sell 3 units, the price must be $8.00 per unit. The marginal revenue from selling the third unit is
$7.00.
Suppose the grocery store market in Kansas City is perfectly competitive. Then one store buys all the others and becomes a singleminus−price monopoly. The figure above shows the relevant demand and cost curves. When the market is perfectly competitive, the price of a pound of steak is ________ and when it is a monopoly, the price of a pound of steak is ________.
$8; $12
The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot Pillows, a singleminus−price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, he produces ________ pillows per hour.
3,000
The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot pillows, a monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, Paul produces ________ pillows per hour and if the market was perfectly competitive, ________ pillows per hour would be produced.
3,000; 4,000
The figure above shows a perfectly competitive firm. If the market price is $20 per unit, then the firm produces ________ units and has an economic profit that is ________.
30; zero because the firm earns a normal profit
Arnie's Airlines is a monopoly airline that is able to price discriminate. If Arnie's decides to price discriminate, then
Arnie's profit increases.
The corn market is perfectly competitive, with thousands of corn farmers. In the 2000s, the price of corn soared so that new farmers entered the corn market. Initially, entry ________ the economic profit of the initial corn farmers and in the long run the initial corn farmers ________.
decreased; earned zero economic profit