econ final

In the long run, a monopolistically competitive firm produces a quantity that is a. equal to the efficient scale. b. less than the efficient scale. c. greater than the efficient scale. d. consistent with diseconomies of scale.

b. less than the efficient scale.

Which of the following statements is (are) true of a monopoly? (i)A monopoly has the ability to set the price of its product at whatever level it desires. (ii)A monopoly's total revenue will always increase when it increases the price of its product. (iii)A monopoly can earn unlimited profits. a. (i) only b. (ii) only c. (i) and (ii) d. (ii) and (iii)

a. (i) only

Once a cartel is formed, the market is in effect served by a. a monopoly. b. an oligopoly. c. imperfect competition. d. monopolistic competition.

a. a monopoly.

When a firm operates with excess capacity, a. additional production would lower the average total cost. b. additional production would increase average total cost. c. it must be a perfectly competitive firm. d. it must be a monopolistically competitive firm.

a. additional production would lower the average total cost.

The prisoners' dilemma provides insights into the a. difficulty of maintaining cooperation. b. benefits of avoiding cooperation. c. benefits of government ownership of monopoly. d. ease with which oligopoly firms maintain high prices.

a. difficulty of maintaining cooperation.

Product differentiation causes the seller of a good to face what type of demand curve? a. downward sloping b. upward sloping c. horizontal d. vertical

a. downward sloping

The phenomenon of product differentiation contrasts sharply with the phenomenon of a. homogeneous products. b. industrial products. c. monopolistic competition. d. product integration.

a. homogeneous products.

As the number of firms in an oligopoly market grows larger, the price will approach a. marginal cost. b. average fixed cost. c. zero. d. the monopoly price.

a. marginal cost.

When a monopolistically competitive firm is in long-run equilibrium, a. marginal revenue is equal to marginal cost. b. marginal revenue is equal to average total cost. c. marginal revenue is equal to price. d. price is equal to marginal cost.

a. marginal revenue is equal to marginal cost.

Price discrimination requires the firm to a. separate customers according to their willingness to pay. b. differentiate between different units of its product. c. engage in arbitrage. d. All of the above are correct.

a. separate customers according to their willingness to pay.

Both monopolistic competition and oligopoly are market structures a. that lie between the extreme cases of competition and monopoly. b. that feature only a few firms in each market. c. to which the concept of Nash equilibrium is frequently applied by economists. d. All of the above are correct.

a. that lie between the extreme cases of competition and monopoly.

If a firm in a monopolistically competitive market successfully uses advertising to decrease elasticity of demand for its product, a. the firm will be able to increase its markup over marginal cost. b. the firm will eventually have to lower price to remain competitive. c. it will increase the well-being of society. d. it will reduce average total cost.

a. the firm will be able to increase its markup over marginal cost.

In markets characterized by oligopoly, a. the oligopolists are best off cooperating and behaving like a monopolist. b. collusive agreements will always prevail. c. collective profits are always lower with cartel arrangements than they are without cartel arrangements. d. pursuit of self-interest by profit-maximizing firms always maximizes collective profits in the market.

a. the oligopolists are best off cooperating and behaving like a monopolist.

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together, a. they are unable to maintain the same degree of monopoly power enjoyed by a monopolist. b. each firm's profit always ends up being zero. c. society is worse off as a result. d. All of the above are correct.

a. they are unable to maintain the same degree of monopoly power enjoyed by a monopolist.

The legislation passed by Congress in 1890 to reduce the market power of large and powerful "trusts" is called the a. Morgan Act. b. Sherman Act. c. Clayton Act. d. 14th Amendment.

b. Sherman Act.

Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized mutually beneficial trades are a. of little concern to society. b. a deadweight loss to society. c. a sunk cost to society. d. also observed in competitive markets.

b. a deadweight loss to society.

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium? a. an increase in demand b. a decrease in demand c. a downward shift in their marginal cost curve d. an upward shift in their marginal cost curve

b. a decrease in demand

One key difference between an oligopoly market and a competitive market is that oligopolistic firms a. are price takers while competitive firms are not. b. are interdependent while competitive firms are not. c. sell completely unrelated products while competitive firms do not. d. sell their product at a price equal to marginal cost while competitive firms do not.

b. are interdependent while competitive firms are not.

The De Beers diamond monopoly is a classic example of a monopoly that a. is government-created. b. arises from the ownership of a key resource. c. results in very little advertising of the product that the monopolist produces. d. was broken up by the government a long time ago.

b. arises from the ownership of a key resource.

For a monopolistically competitive firm, a. marginal revenue and price are the same quantity. b. average revenue and price are the same quantity. c. at the profit-maximizing quantity of output, price equals marginal cost. d. at the profit-maximizing quantity of output, marginal revenue exceeds price.

b. average revenue and price are the same quantity.

A monopoly's marginal cost will a. be less than its average fixed cost. b. be less than the price per unit of its product. c. exceed its marginal revenue. d. equal its average total cost.

b. be less than the price per unit of its product.

The free entry and exit of firms in a monopolistically competitive market guarantees that a. both economic profits and economic losses can persist into the long run. b. both economic profits and economic losses disappear in the long run. c. economic profits can persist into the long run, but not economic losses. d. economic losses can persist into the long run, but not economic profits.

b. both economic profits and economic losses disappear in the long run.

When strategic interactions are important to pricing and production decisions, a typical firm will a. set the price of its product equal to marginal cost. b. consider how competing firms might respond to its actions. c. generally operate as if it is a monopolist. d. consider exiting the market.

b. consider how competing firms might respond to its actions.

Suppose that monopolistically competitive firms in a certain market are earning positive profits. In the transition from this initial situation to a long-run equilibrium, a. the number of firms in the market decreases. b. each incumbent firm experiences a decrease in demand for its product. c. each incumbent firm experiences a rightward shift of its marginal revenue curve. d. All of the above are correct.

b. each incumbent firm experiences a decrease in demand for its product.

In the long run, a firm in a perfectly competitive market operates at a. efficient scale and a monopolistically competitive firm operates at efficient scale. b. efficient scale and a monopolistically competitive firm operates with excess capacity. c. excess capacity and a monopolistically competitive firm operates with excess capacity. d. excess capacity and a monopolistically competitive firm operates at efficient scale.

b. efficient scale and a monopolistically competitive firm operates with excess capacity.

For a typical natural monopoly, average total cost is a. falling and marginal cost is above average total cost. b. falling and marginal cost is below average total cost. c. rising and marginal cost is below average total cost. d. rising and marginal cost is above average total cost.

b. falling and marginal cost is below average total cost.

When we compare diagrams for firms in different market structures, we see that a. for competitive firms and monopolistically competitive firms, the revenue curves are similar but the cost curves are quite different. b. for competitive firms and monopolistically competitive firms, the cost curves are similar but the revenue curves are quite different. c. for monopoly firms and monopolistically competitive firms, the revenue curves are similar but the cost curves are quite different. d. for monopoly firms and monopolistically competitive firms, the cost curves are similar but the revenue curves are quite different.

b. for competitive firms and monopolistically competitive firms, the cost curves are similar but the revenue curves are quite different.

One way in which monopolistic competition differs from oligopoly is a. there are no barriers to entry in oligopolies. b. in oligopoly markets there are only a few sellers. c. all oligopoly firms eventually earn zero economic profits. d. strategic interactions between firms are rarely evident in oligopolies.

b. in oligopoly markets there are only a few sellers.

The prisoners' dilemma is an important game to study because a. most games present zero-sum alternatives. b. it identifies the fundamental difficulty in maintaining cooperative agreements. c. strategic decisions faced by prisoners are identical to those faced by firms engaged in competitive agreements. d. All of the above are correct.

b. it identifies the fundamental difficulty in maintaining cooperative agreements.

The monopolist's profit-maximizing quantity of output is determined by the intersection of which of the following two curves? a. marginal cost and demand b. marginal cost and marginal revenue c. average total cost and marginal revenue d. average variable cost and average revenue

b. marginal cost and marginal revenue

The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as a. price segregation. b. price discrimination. c. arbitrage. d. monopoly pricing.

b. price discrimination.

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium, a. the demand curve will be perfectly elastic. b. price exceeds marginal cost. c. marginal cost is falling. d. marginal revenue exceeds marginal cost.

b. price exceeds marginal cost.

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms, a. marginal revenue will equal average total cost. b. price will exceed marginal cost. c. marginal cost will exceed average revenue. d. average variable cost will be declining.

b. price will exceed marginal cost.

In a game, a dominant strategy is, by definition, a. the best strategy for a player to follow only if other players are cooperative. b. the best strategy for a player to follow, regardless of the strategies followed by other players. c. a strategy that always leads to a Nash equilibrium. d. a strategy that leads to one player's interests dominating the interests of the other players.

b. the best strategy for a player to follow, regardless of the strategies followed by other players.

A monopoly firm can sell 150 units of output for $12.00 per unit. Alternatively, it can sell 151 units of output for $11.95 per unit. The marginal revenue of the 151st unit of output is a. $-11.95. b. $-4.45. c. $4.45. d. $11.95.

c. $4.45.

Angelo is a wholesale meatball distributor. He sells his meatballs to all the finest Italian restaurants in town. Nobody can make meatballs like Angelo. As a result, his is the only business in town that sells meatballs to restaurants. Assuming that Angelo is maximizing his profit, which of the following statements is true? a. Meatball prices will be less than marginal cost. b. Meatball prices will equal marginal cost. c. Meatball prices will exceed marginal cost. d. Meatball prices will be a function of supply and demand and will therefore oscillate around marginal costs.

c. Meatball prices will exceed marginal cost.

When an oligopoly market is in Nash equilibrium, a. market price will be different for each firm. b. firms will not behave as profit maximizers. c. a firm will choose its best pricing strategy, given the strategies that it observes other firms taking. d. a firm will not take into account the strategies of competing firms.

c. a firm will choose its best pricing strategy, given the strategies that it observes other firms taking.

In a monopolistically competitive industry, price is a. equal to marginal cost since each firm is a price taker. b. below marginal cost since each firm is a price taker. c. above marginal cost since each firm is a price setter. d. always a fraction of marginal cost since each firm is a price setter.

c. above marginal cost since each firm is a price setter.

As new firms enter a monopolistically competitive market, profits of existing firms a. rise and product diversity in the market increases. b. rise and product diversity in the market decreases. c. decline and product diversity in the market increases. d. decline and product diversity in the market decreases.

c. decline and product diversity in the market increases.

The socially efficient level of production occurs where the marginal cost curve intersects which of the following curves? a. average variable cost b. average total cost c. demand d. marginal revenue

c. demand

Monopolistic competition differs from perfect competition because in monopolistically competitive markets a. there are barriers to entry. b. all firms can eventually earn economic profits. c. each of the sellers offers a somewhat different product. d. strategic interactions between firms is vitally important.

c. each of the sellers offers a somewhat different product.

The primary claim of defenders of advertising is that it a. conveys information about firm profitability. b. is psychological rather than informational. c. enhances the information available to consumers. d. All of the above are correct.

c. enhances the information available to consumers.

A tit-for-tat strategy starts out a. conciliatory and then encourages an optimal social outcome among the other players. b. unfriendly and then encourages friendly strategies among players. c. friendly, then penalizes unfriendly players, and forgives them if warranted. d. aggressive, then compensates losing players, and eventually forgives unfriendly players.

c. friendly, then penalizes unfriendly players, and forgives them if warranted.

When firms are faced with making strategic choices in order to maximize profit, economists typically use a. the theory of monopoly to model their behavior. b. the theory of aggressive competition to model their behavior. c. game theory to model their behavior. d. cartel theory to model their behavior.

c. game theory to model their behavior.

Advertising in markets for professional services (lawyers, doctors, etc.) has a. decreased in recent years and competition in these markets has been enhanced. b. decreased in recent years and competition in these markets has been reduced. c. increased in recent years and competition in these markets has been enhanced. d. increased in recent years and competition in these markets has been reduced.

c. increased in recent years and competition in these markets has been enhanced.

In order to sell more of its product, a monopolist must a. sell to the government. b. sell in international markets. c. lower its price. d. use its market power to force up the price of complementary products.

c. lower its price.

If a profit-maximizing monopolist faces a downward-sloping market demand curve, its a. average revenue is less than the price of the product. b. average revenue is less than marginal revenue. c. marginal revenue is less than the price of the product. d. marginal revenue is greater than the price of the product.

c. marginal revenue is less than the price of the product.

There are two types of imperfectly competitive markets: a. monopoly and monopolistic competition. b. monopoly and oligopoly. c. monopolistic competition and oligopoly. d. monopolistic competition and cartels.

c. monopolistic competition and oligopoly.

Advertising that uses celebrity endorsements is most likely intended to a. increase elasticity of demand for the advertised product. b. reduce the ability of markets to allocate resources efficiently. c. provide a signal of product quality. d. be useful only for psychological effects.

c. provide a signal of product quality.

A similarity between monopoly and monopolistic competition is that, in both market structures, a. strategic interactions among sellers are important. b. there are fewer than "many" sellers. c. sellers are price makers rather than price takers. d. product differentiation is important.

c. sellers are price makers rather than price takers.

A government-created monopoly arises when a. government spending in a certain industry gives rise to monopoly power. b.the government exercises its market control by encouraging competition among sellers. c. the government gives a firm the exclusive right to sell some good or service. d. All of the above could qualify as government-created monopolies.

c. the government gives a firm the exclusive right to sell some good or service.

Many movie theaters allow discount tickets to be sold to senior citizens because a. senior-citizen laws mandate such discounts. b. efforts of goodwill show community respect and win loyal patrons. c. the theaters are profit maximizers. d. senior citizens usually comprise a solid portion of those who voice their opinions.

c. the theaters are profit maximizers.

The fact that there is a great deal of advertising of men's shaving products indicates that a. the market for those products is perfectly competitive. b. it costs firms very little to produce those products. c. those products are highly differentiated. d. All of the above are correct.

c. those products are highly differentiated.

Discount coupons have the ability to help a grocery store a. price discriminate. b. target its customers based on their individual willingness to pay. c. maximize its profit. d. All of the above are correct.

d. All of the above are correct.

The concept of a Nash equilibrium, when applied to an oligopoly situation, a. illustrates the tension between self-interest and cooperation. b. relies on the logic of firms pursuing their own self-interests. c. relies on the notion that each firm chooses its best strategy, given the strategies that other firms have chosen. d. All of the above are correct.

d. All of the above are correct.

When a monopolistically competitive firm is in long-run equilibrium, a. price is equal to average total cost. b. price exceeds marginal cost. c. price exceeds marginal revenue. d. All of the above are correct.

d. All of the above are correct.

When regulators use a marginal cost pricing strategy to regulate a natural monopoly, the regulated monopoly a. will experience a loss. b. will experience a price below average total cost. c. may rely on a government subsidy to remain in business. d. All of the above are correct.

d. All of the above are correct.

Which of the following is an example of a barrier to entry? (i) A key resource is owned by a single firm. (ii) The costs of production make a single producer more efficient than a large number of producers. (iii) The government has given the existing monopoly the exclusive right to produce the good. a. (i) and (ii) b. (ii) and (iii) c. (i) only d. All of the above are correct.

d. All of the above are correct.

Let P = price; MR = marginal revenue; and MC = marginal cost. For a profit-maximizing monopolist, a. P = MR = MC. b. P = MR < MC. c. P = MR > MC. d. P > MR = MC.

d. P > MR = MC.

If firms in a monopolistically competitive market are incurring economic losses, which of the following scenarios would best reflect the change facing incumbent firms (who are able to stay in the market) as the market adjusts to its new equilibrium? a. a downward shift in their marginal cost curve b. an upward shift in their marginal cost curve c. a decrease in demand d. an increase in demand

d. an increase in demand

New firms will necessarily enter a monopolistically competitive market when price exceeds a. marginal revenue. b. average revenue. c. marginal cost. d. average total cost.

d. average total cost.

Entry and exit drive each firm in a monopolistically competitive market to a point of tangency between its a. marginal revenue curve and its total-cost curve. b. marginal revenue curve and its average-total-cost curve. c. demand curve and its total-cost curve. d. demand curve and its average-total-cost curve.

d. demand curve and its average-total-cost curve.

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity, a. its average revenue will equal its marginal cost. b. its marginal revenue will exceed its marginal cost. c. it will be earning positive economic profits. d. its demand curve will be tangent to its average-total-cost curve.

d. its demand curve will be tangent to its average-total-cost curve.

When a natural monopoly exists, it is a. always cost effective for government-owned firms to produce the product. b. never cost effective for one firm to produce the product. c. always cost effective for two or more private firms to produce the product. d. never cost effective for two or more private firms to produce the product.

d. never cost effective for two or more private firms to produce the product.

Markets with only a few sellers, each offering a product similar or identical to the others, are typically referred to as a. competitive markets. b. monopoly markets. c. monopolistically competitive markets. d. oligopoly markets.

d. oligopoly markets.

The key difference between a competitive firm and a monopoly firm is the ability to select a. the level of competition in the market. b. the level of production. c. inputs in the production process. d. the price of its output.

d. the price of its output.

The "arms race" is similar to which of the following economic scenarios? a. the welfare choice b. cost allocation theory c. the competitive game d. the prisoners' dilemma

d. the prisoners' dilemma