Economics Final

Which of the following is not a reason why government officials are willing to impose entry barriers?

to promote a more equal distribution of income

Profit

total revenue minus total cost

Sherman Act

was passed in 1890 to promote competition and prevent the formation of monopolies.

horizontal merger

which is a merger between firms in the same industry, such as two airlines or two cell service providers, since horizontal mergers have the greater potential to reduce competition.

Producer Surplus

which is the difference between the lowest price firms are willing to accept (represented by the supply curve or marginal cost) and the price they actually receive

consumer surplus

which is the difference between the maximum amount people are willing to pay (represented by the demand curve) and the price that they actually pay,

public franchise

which makes one firm the only legal provider of a good or service

Profit

(P-ATC)XQ

price takers

-Perfectly competitive firms are price takers - they must take the product's price as given and will have to charge the same price as every other firm in the market

three conditions required for a firm to engage in price discrimination:

-The firm must face a downward-sloping demand curve -There must be identifiable groups of consumers that have a different willingness to pay -The product or service must be difficult to resell

Three conditions that make a market perfectly competitive:

-There must be many firms and many buyers, each of which are small relative to size of the entire market. -All firms in the market must sell identical, or homogeneous, products. -There are no barriers to entry; new firms can easily enter the market and existing firms can exit or leave the market.

three conditions that make a market monopolistically competitive are:

-There must be many firms and many buyers, each of which are small relative to the size of the entire market. -Firms sell a differentiated, or heterogenous, product. Products might be similar, but they are not identical. -There are no barriers to entry; new firms can easily enter the market and existing firms can leave the market.

important characteristics of a monopoly

-there is one firm that is the only seller of a good or service with no close substitutes. -Very high barriers to entry prevent other firms from entering the market.

What is the dominant strategy in the original prisoner's dilemma?

Each prisoner confesses because this is the rational action to pursue.

Which of the following is not a characteristic of monopolistic competition?

Firms are price takers.

What does excess capacity mean?

Firms do not produce the output level that corresponds to the minimum point on their average total cost curves.

In long-run perfectly competitive equilibrium, which of the following is FALSE?

Firms earn positive economic profit.

Which of the following is not a characteristic of a perfectly competitive market structure?

Firms produce heterogenous products.

Suppose the demand equation for a monopolist is p=200−q. Given this demand equation, what is the firm's marginal revenue (MR) equation?

MR=200-2Q

monopolistically competitive

Many firms, such as restaurants, clothing stores, coffee shops, movie theaters, supermarkets, furniture stores, etc., are considered

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

Marginal cost will be minimized.

Moe opened a soup restaurant two years ago, and is earning positive economic profits. What do we expect to happen in the long run?

Moe's success will invite others to open competing restaurants, and the economic profits will be driven to zero.

Is a monopolistically competitive firm allocatively efficient?

No, because price is greater than marginal cost.

In a perfectly competitive market

P=AR=MR

Total Revenue (TR)

Price x Quantity

Average Revenue (AR)

TR/Q

Suppose the only two firms in an oligopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

The advertisement ensures that the other firm does not cheat by unilaterally lowering their own price.

Which of the following is NOT a characteristic of monopoly?

There are a few sellers, each selling a unique product.

perfect competition

Where there are many buyers and many sellers, all of which are small relative to the size of the entire market

Which of the following is the best example of a perfectly competitive firm?

a corn farmer

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

a payoff matrix.

What is productive efficiency?

a situation in which resources are allocated such that goods can be produced at their lowest possible average cost

The "Discount Department Stores" industry is highly concentrated. This means

a small number of large firms own a large percentage of industry sales

antitrust laws

aimed at eliminating collusion and promoting competition among firms. In the United State

In a graph with output quantity on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue function for a perfectly competitive firm?

an upward sloping line from the origin

If a typical monopolistically competitive firm is incurring short-run losses, then in the long run,

as some firms leave, the remaining firms will experience an increase in the demand for their products.

The process of working from the end of a game tree back to the beginning when solving a sequential game is known as

backwards induction.

What is the incentive for a firm to join a cartel?

be able to earn larger profits than if it was not part of the cartel

The marginal revenue of a monopolistically competitive firm

can be negative if the firm charges a low price.

Marginal Revenue (MR)

change in TR/change in Q

Marginal Cost (MC)

change in total cost / change in quantity

A monopoly causes a deadweight loss because it

chooses an output level where price is greater than marginal cost.

If a monopoly firm wants to increase the number of units it sells, it must

lower its price.

A perfectly competitive firm's supply curve is its

marginal cost curve above its minimum average variable cost.

The price of a seller's product in perfect competition is determined by

market demand and market supply.

monopolistically competitive

market structure where many businesses produce similar but not exactly the same products

What is a similarity between a firm in perfect competition and a monopoly? Each firm

maximizes profit by producing a quantity where marginal revenue equals marginal cost

If total revenue exceeds fixed cost, a firm

may or may not produce in the short run, depending on whether total revenue covers variable cost.

productive efficiency

occurs when a good or service is produced at the lowest possible cost

natural monopoly

occurs when economies of scale are so large that one firm can supply the entire market at a lower average total cost than can two or more firms.

allocative efficiency

occurs when production is in accordance with consumer preferences.

When a monopolistically competitive firm cuts its price to increase its sales, it experiences a gain in revenue due to the

output effect.

A monopolistically competitive firm maximizes profit at an output level where

price > marginal cost.

Breaking even

price is equal to average total cost

earning positive economic profits

price is greater than average total cost

Earning a negative economic profit (loss)

price is less than average total cost

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

productive efficiency

A significant difference between monopolistic competition and perfect competition is __________

products are not homogenous in monopolistic competition.

Which of the following entry barriers is the result of government action?

public franchise

If a typical firm in a perfectly competitive industry is incurring losses, then

some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms.

In general, brand management refers to

the efforts to maintain the differentiation of a product over time.

Since the monopolist is the only seller in the market, it faces

the entire market demand curve.

It is difficult to determine an individual oligopoly firm's demand curve because

the firm's price and quantity decisions depend on the actions of other competing firms.

In perfect competition

the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

When a monopolistically competitive firm lowers its price, there is both an increase and decrease in revenues, through different effects. Revenue will increase as a result of a price decrease due to

the output effect.

A natural monopoly is most likely to occur in which of the following industries?

electricity production in a rural area

economies of scale

exist when a firm's long run average costs fall as it produces a higher output quantity

An oligopolistic industry has all of the following characteristics except

firms choosing business strategies that do not consider the actions of competitors

Which of the following could prevent a firm from successfully engaging in price discrimination?

if customers were easily able to resell goods that they purchased

The only firms that do not have market power are firms

in perfectly competitive markets.

In perfect competition, if price exceeds the marginal cost of production, the firm should

increase its output.

monopoly

is a firm that is the only seller of a good or service that does not have a close substitute

vertical merger

is a merger between firms at different stages in the production of a good, such as a firm that makes apple juice merging with a firm that makes plastic bottles

A merger between firms at different stages of production of a good

is a vertical merger.

The price a perfectly competitive firm receives for its output

is determined by the interaction of all sellers and all buyers in the firm's market.

If a perfectly competitive firm's price is above its average total cost, the firm

is earning a profit.

With perfect price discrimination, the marginal revenue curve

is equal to the demand curve.

When a firm faces a downward-sloping demand curve, marginal revenue

is less than price because a firm must lower its price to sell more.

In 2019, pastured eggs sold for more than twice the price of cage-free eggs and almost 5 times the price of conventional eggs, making pastured eggs more profitable than the other eggs. Over time, the perfectly competitive egg market will approach a long-run equilibrium in which producing pastured eggs

is no more profitable than producing the other eggs.

Price discrimination

is the practice of charging different prices to different customers for the same good or service when the price differences are not due to differences in cost.

Perfect price discrimination

is when each consumer pays a price equal to their willingness to pay and therefore, receives no consumer surplus.

network externality

is when the usefulness of a product increases with the number of people who use it.

Oligopoly differs from perfect competition and monopolistic competition in that

it is difficult to plot an oligopoly firm's demand curve as the firm will often react when other firms in their industry change their prices.

Clayton Act

1914 addressed the issues of firms merging in order to reduce competition and act as a monopoly.

How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

A firm in monopolistic competition does not produce at the lowest average cost possible but a firm in perfect competition does.

Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of well-being (efficiency loss)?

Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes.

post-merger HHI

Less than 1,500The merger will be allowed. Between 1,500 and 2,500The merger is unlikely to be challenged if it raised the HHI by less than 100.The merger might be challenged if it raised the HHI by more than 100. Greater than 2,500The merger is unlikely to be challenged if it raised the HHI by less than 100.The merger might be challenged if it raised the HHI by between 100 and 200.The merger is likely to be challenged if it raised the HHI by more than 200.