ECON 402 EX 3(((((((((((((((((

Suppose an industry is made up of 25 firms, all with equal market share. The four-firm concentration ratio of this industry is A) 16%. B) 20%. C) 25%. D) It cannot be determined from the information given.

A) 16%

An example of a monopoly based on control of a key resource is A) Major League Baseball. B) the Paul Ecke Ranch monopoly on poinsettias. C) Microsoft's Windows operating system. D) the U.S. Food and Drug Administration.

A) Major League Baseball

The key characteristics of a monopolistically competitive market structure include A) many small (relative to the total market) sellers acting independently. B) all sellers sell a homogeneous product. C) barriers to entry are strong. D) sellers have no incentive to advertise their products.

A) Many small (relative to the total land market) sellers acting independently

A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called A) a business strategy. B) a payoff matrix. C) the Porter's Competitive Forces plan. D) game theory.

A) a business strategy

Nike has used Michael Jordan to create the impression that Air Jordan basketball shoes are superior to any other basketball shoes. Nike is attempting to A) differentiate Air Jordan basketball shoes from other types of basketball shoes. B) lower the marginal cost of producing Air Jordan basketball shoes. C) increase its profit by raising the price of Air Jordan basketball shoes. D) convince consumers that Air Jordan basketball shoes are no different from other basketball shoes favored by celebrities.

A) differentiate Air Jordan basketball shoes from other types of basketball shoes.

Being the first to sell a particular good can give a firm advantages over other firms that sell similar products. What is the name given to these advantages? A) first-mover B) first come, first served C) follow the leader D) first to market

A) first-mover

In Porter's Five Competitive Forces model, "competition from substitute goods or services" refers to... A) substitute products that come from outside the industry. B) substitute products that come from domestic competitors in the same industry. C) substitute products that come from foreign competitors in the same industry. D) competition from producers of substitutes who outsource their production.

A) substitute products that come from outside the industry

The demand curve for the monopoly's product is A) the market demand for the product. B) more elastic than the market demand for the product. C) more inelastic than the market demand for the product. D) undefined.

A) the market demand for the product

A monopoly is characterized by all of the following except A) there are only a few sellers each selling a unique product. B) entry barriers are high. C) there are no close substitutes to the firm's product. D) the firm has market power.

A) there are only a few sellers each selling a unique product.

When a proposed merger between two companies is reviewed by the government, the relevant market is defined by A) whether or not there are close substitutes for the products of the two firms. B) how elastic the demand is for each firm's product. C) counting the number of firms that produce the same product. D) how much advertising is done in the industry.

A) whether or not there are close substitutes for the products of the two firms.

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it? A) productive efficiency B) allocative efficiency C) marginal efficiency D) profit maximizatio

B) Allocative efficiency

Which of the following characteristics is common to monopolistic competition and perfect competition? A) Firms produce identical products. B) Entry barriers into the industry are low. C) Each firm faces a downward -sloping demand curve. D) Firms take market prices as given

B) Entry barriers into the industry are low

Juicy Couture has been successful in selling women's clothing using an unusual strategy. According to an article in the Wall Street Journal, the key to the firm's strategy is to "limit distribution to maintain the brand's exclusive cachet, even if that means sacrificing sales, a brandmanagement technique once used only for high-end luxury brands." In 2006, Juicy clothes were sold in only four department stores: Neiman Marcus, Saks, Bloomingdale's, and Nordstrom. In 2006, its sales have more than quadrupled since 2002. Source: Rachel Dodes, "From Track Suits to Fast Track," Wall Street Journal, September 13, 2006. How does limiting the number of stores in which Juicy's products are sold contribute to its success? A) By sacrificing sales, the company was able to focus on producing high quality products. B) It enables Juicy to price its products at a premium and differentiate them from lower priced products. C) It helps establish Juicy's products as luxury items favored by the very wealthy. D) Maintaining the exclusivity of a product increases the demand for the product.

B) It enables Juicy to price its products at a premium and differentiate them from lower priced products.

Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market? A) Selling price equals average total cost. B) Production is at minimum average total cost. C) Marginal revenue equals marginal cost. D) Selling price is greater than marginal cost.

B) Production is at minimum average total cost

To maintain a monopoly, a firm must have A) a perfectly inelastic demand. B) an insurmountable barrier to entry. C) marginal revenue equal to demand. D) few competitors.

B) an insurmountable barrier to entry

A market comprised of only two firms is called a A) competitive market. B) duopoly. C) monopoly. D) monopolistically competitive market.

B) duopoly

A monopolistically competitive industry that earns economic profits in the short run will A) continue to earn economic profits in the long run. B) experience the entry of new rival firms into the industry in the long run. C) experience the exit of existing firms out of the industry in the long run. D) experience a rise in demand in the long run.

B) experience the entry of new rival firms into the industry in the long run.

A merger between the Ford Motor Company and General Motors would be an example of a A) vertical merger. B) horizontal merger. C) conglomerate merger. D) trust.

B) horizontal merger

A firm cannot control all of the factors that allow it to make economic profits. Which of the following is an example of an uncontrollable factor? A) product differentiation B) input prices C) producing at a lower average total cost than competing firms D) hiring competent manager

B) input prices

For allocative efficiency to hold.... A) price must equal marginal revenue of the last unit sold. B) price must equal the marginal cost of the last unit produced. C) average variable cost is minimized in production. D) average total cost is minimized in production.

B) price must equal the marginal cost of the last unit produced

Unlike a perfectly competitive firm, for a monopolistically competitive firm... A) price ≠ marginal cost for all output levels. B) price ≠ marginal revenue for all output levels. C) price ≠ average revenue for all output levels. D) marginal revenue = marginal cost at the profit-maximizing output.

B) price ≠ marginal revenue for all output levels.

How does the long run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry? A) A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit. B) A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production. C) A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible. D) A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level.

C) A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.

One reason why the coffeehouse market is competitive is that... A) demand for specialty coffee is very high. B) it is trendy and therefore is likely to have a customer following. C) barriers to entry are low. D) consumption takes place in public.

C) Barriers to entry are low

In a decision tree, the difference between a decision node and a terminal node is that A) at a decision node all participants are free to make individual decisions but at a terminal node they must agree on a collective decision. B) at a decision node all participants make the same decision, while at a terminal node different players may make different decisions. C) at a decision node, a decision must be made while a terminal node shows the payoff. D) at a decision node a decision must be made, while at a terminal node the final decision must be made.

C) at a decision node, a decision must be made while a terminal node shows the payoff.

An oligopolistic industry is characterized by all of the following except A) existence of entry barriers. B) the possibility of reaping long run economic profits. C) firms pursuing aggressive business strategies, independent of rivals' strategies. D) production of standardized products.

C) firms pursuing aggressive business strategies, independent of rivals' strategies.

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called A) Nash equilibrium. B) the prisoner's dilemma. C) game theory. D) dominant strategy equilibrium.

C) game theory

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to A) a government-imposed barrier. B) occupational licensing. C) no competitors apparently found the profit level attractive enough to enter the market. D) the restaurant owned all the fresh seafood in the state.

C) no competitors apparently found the profit level attractive enough to enter the market

If buyers of a monopolistically competitive product feel the products of different sellers are strongly differentiated, then the demand for each seller's product is A) perfectly inelastic. B) perfectly elastic. C) relatively inelastic. D) relatively elastic.

C) relatively inelastic

If we use a narrow definition of monopoly, then a monopoly is defined as a firm A) that has been granted special production rights by the government. B) that can ignore the actions of all other firms because it produces a superior product compared to its rivals' products. C) that can ignore the actions of all other firms because it produces a product for which there are no close substitutes. D) that has the largest market share in an industry.

C) that can ignore the actions of all other firms because it produces a product for which there are no close substitutes.

You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants. You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce. What is likely to happen in the restaurant market in your hometown after you open? A) Your competitors are likely to change their menus to make their products more similar to yours. B) The demand curve facing each restaurant owner shifts to the right. C) The demand curve facing each restaurant owner becomes more elastic. D) While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic.

C) the demand curve facing each restaurant owner becomes more elastic

A key part of Microsoft's business strategy in the video game console market has been A) to wait until competitors introduce new technology in their products before incorporating the technology in its products. B) to concentrate on selling its products through large discount retailers like Wal-Mart. C) the innovation of new products which initially have little to no competition. D) to dominate the market by offering low-end products and beating its competitors' prices.

C) the innovation of new products which initially have little to no competition.

Because a monopoly's demand curve is the same as the market demand curve for its product A) the monopoly's marginal revenue equals its price. B) the monopoly is a price taker. C) the monopoly must lower its price to sell more of its product. D) the monopoly's average total cost always falls as it increases its output.

C) the monopoly must lower its price to sell more of its product.

Economic efficiency in a free market occurs when A) consumer surplus is maximized. B) producer surplus is maximized. C) the sum of consumer surplus and producer surplus is maximized. D) price is as low as possible

C) the sum of consumer surplus and producer surplus is maximized

What is the profit-maximizing rule for a monopolistically competitive firm? A) to produce a quantity that maximizes market share B) to produce a quantity that maximizes total revenue C) to produce a quantity such that marginal revenue equals marginal cost D) to produce a quantity such that price equals marginal cost

C) to produce a quantity such that marginal revenue equals marginal cost

A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of A) control of a key raw material. B) network externalities. C) economies of scale. D) perfectly inelastic demand curve.

C)network externalities

If a monopolist's price is $50 per unit and its marginal cost is $25, then A) to maximize profit the firm should increase output. B) to maximize profit the firm should decrease output. C) to maximize profit the firm should continue to produce the output it is producing. D) Not enough information is given to say what the firm should do to maximize profit.

D) Not enough information is given to say what the firm should do to maximize profit

A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except A) new rivals entering the market. B) a decrease in demand for its product. C) demand for the firm's product becomes more elastic. D) a decrease in the number of rival products.

D) a decrease in the number of rival products

A trademark is.. A) a legal instrument which grants a firm the right to differentiate its product. B) a legal right to position a firm's product in high-traffic public areas such as airports and post offices. C) a patent on a firm's product. D) a distinguishing attribute such as a sign or logo that allows a firm to uniquely identify its product.

D) a distinguishing attribute such as a sign or logo that allows a firm to uniquely identify its product.

Which of the following is not among Porter's competitive forces? A) power of buyers B) power of suppliers C) threat of new entrants D) changing consumer tastes

D) changing consumers tastes

As word processing on personal computers expanded, sales of typewriters began to disappear. Which of Porter's competitive forces does this event demonstrate? A) the threat of competition from new entrants B) bargaining power of suppliers C) bargaining power of buyers D) competition from substitute goods or services

D) competition from substitute goods or services

An oligopolist differs from a perfect competitor in that A) there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. B) firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. C) the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. D) there are no entry barriers in perfect competition but there are entry barriers in oligopoly.

D) there are no entry barriers in perfect competition but there are entry barriers in oligopoly.