ECON 2143 Exam #2 Chapter 12 & 13 Study Questions
To maximize its profit, a perfectly competitive firm produces so that ________ and a singleminus−price monopoly produces so that ________.
MR = MC; MR = MC
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 Nashequilibrium, Firm A will set a price of ________ and Firm B will set a price of ________.
$10; $10
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 cartel is a group of firms
acting together to limit output, raise price, and increase economic profit.
A cartel is
an agreement among firms to limit output, raise prices, and increase economic profit.
Herb's Inc. has a large share of its market and is tempted to collude with the few firms that are in its market. Herb's operates in
an oligopoly.
Patents
are a legal barrier to entry.
A natural monopoly
arises when one firm can meet the entire market demand at a lower average total cost than two or more firms.
To be able to price discriminate, a firm must
be able to identify and separate different types of buyers.
In the prisoners' dilemma, each player is ________ regardless of the other player's actions.
better off confessing
For a firm in monopolistic competition, selling costs
can change the quantity produced and lower the average total cost.
Intel and AMD are a duopoly that produce CPU chips. Intel and AMD can conduct R&D or they can not conduct R&D. The table above shows the payoff matrix for the two firms. The numbers are millions of dollars of profit. The Nash equilibrium is for Intel to ________ and for AMD to ________ .
conduct R&D; conduct R&D
If a monopoly is able to perfectly price discriminate, then consumer surplus is
equal to zero.
Which of the following is NOT a characteristic of monopolistic competition?
few firms compete
Advertising costs and other selling costs are
fixed costs.
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
The decision to innovate
is based on the marginal cost and the marginal revenue of innovation.
Monopolies ________ fair and ________ efficient.
might be; might be
Today, you might be buying from a regulated natural monopoly when you purchase
natural gas or electricity.
For a firm in monopolistic competition, innovation and product development are
necessary in order to have a chance of earning at least a short−run economic profit.
In monopolistic competition, a firm can set the price for its product because of
product differentiation.
A cartel is a collusive agreement among a number of firms that is designed to
restrict output and raise prices.
A natural monopoly arises when
the long−run average cost curve slopes downward as it crosses the demand curve.
A firm is spending the profit-maximizing amount on product development when
the marginal cost of product development is equal to the marginal revenue from product development.
When a market has barriers to entry,
then in the long run it might be possible for the firms to make a positive economic profit.
In both monopolistic competition and perfect competition,
there is easy entry and exit.
Suppose a single−price monopoly sells 3 units of a good at $20 per unit. If the monopoly sells 4 units, the total revenue increases to $72. What is the marginal revenue of the fourth unit?
$12
A single−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 single−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 what price will this firm sell the output?
$38
Firm/Sales (millions of dollars) QT Burgers/75 Kwickie Chix/50 Speedy Spuds/50 Hasty Pudding/25 Other 200 firms/800 The table above shows the revenue figures for the top four firms along with a total for the remaining firms in the fast−food industry. What is the four−firm concentration ratio for the industry?
20 percent
Firm/Market share (percent) Gary's Gourmet/30 Allen's Extras/25 Travis' Treats/15 Orin's Eats/10 Reed's Riches/10 Seth's Sweetest/5 Uriah's Foodfest/5 Suppose there are 7 firms in the candy industry with the market shares shown below. What is the HHI for the industry?
2000
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. In order to maximize profit, the Busy Bee produces ________ hamburgers per hour and sets a price of________ per hamburger.
20; $3.00
What is the Herfindahl−Hirschman Index if the four firms in an industry account have market shares of 62 percent, 15 percent, 15 percent, and 8 percent?
4,358
Which of the following statements is FALSE? A. In the long run, a monopoly can earn a larger economic profit than can a perfectly competitive firm. B. The consumer surplus is smaller for a market with a monopoly than for a perfectly competitive market. C. A perfectly competitive market produces more output and charges a lower price than a monopoly. D. In a perfectly competitive market, the price is equal to the marginal cost, but in a market with a singleminus−price monopoly, price exceeds marginal cost. E. A perfectly competitive firm produces where MR = MC but a monopoly produces where MR > MC.
A perfectly competitive firm produces where MR = MC but a monopoly produces where MR > MC.
Which of the following is true about monopolistic competition but false about perfect competition?
Firms compete on their product's price as well as its quality and marketing.
Is a single−price monopoly efficient?
No, because it creates a deadweight loss.
Which of the following is correct?
Perfect competition has a four-firm concentration ratio near zero AND monopoly has a for-firm concentration ratio of more than 40.
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 low−price buyers cannot resell the product to the high−price buyers.
A group of firms that has entered into an agreement to restrict output and increase prices and profits is called
a cartel.
When economies of scale exist so that one firm can meet the entire market demand at a lower average total cost than two or more firms,
a natural monopoly develops.
The figure above shows the demand curve, marginal revenue curve, and marginal cost curve. The amount of consumer surplus when the market has a monopoly producer is
abf.