EXAM 3 ECO 202
Most of the total income earned in the US economy is ultimately paid to
households in the form of wages and fringe benefits
Allowing an inventor to have the exclusive rights to market her new invention will lead to
i. a product that is priced higher than it would be without the exclusive rights ii. desirable behavior in the sense that inventors are encouraged to invent iii. higher profits for the inventor
Which of the following are necessary characteristics of a monopoly
i. the firm is the sole seller of its products ii. the firms product does not have close substitutes
When a single form can supply a product to an entire market at a lower cost that could two or more firms, the industry is called a
natural monopoly
When a natural monopoly exists, it is
never cost effective for two or more private firms to produce the product
Examples of monopolistically competitive markets include the markets for
restaurants and furniture
For a worker, the opportunity cost of an hour of leisure
rises by $5 when her wage rises by $5 per hour
As a group, oligopolists earn the highest profit when they
produce a total quantity of output that falls short of the Nash equilibrium total quantity
Which of the following conditions distinguishes monopolistic competition from perfect competition?
product differentiation
When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have
a Nash equilibrium
To move the allocation of resources closer to the social optimum, policy makers should typically try to induce firms in an oligopoly to
compete rather than cooperate with each other
Which of the following pairs illustrates the two extreme examples of market structures?
competition and monopoly
When strategic interactions are important to pricing and production decisions a typical firm will
consider how competing firms might respond to its actions
This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B). Which outcomes is the Nash equilibrium in this game
Up-Right (2,2)
Which of the following industries has the highest concentration ratio?
cigarettes
The table shows the town of Pittsvilles demand schedule for gasoline. For simplicity, assume the towns gasoline seller(s) incur no costs in selling gasoline. If the market for gasoline in Pittsville is perfectly competitive, then they equilibrium price of gasoline is
$0 and the equilibrium quantity is 1,000 gallons
Sam has two jobs, one for the winter and one for the summer. In the winter, he works as a lift attendant at a ski resort where he earns $11 per hour. during the summer, he drives a tour bus around the ski resort, earning $13 an hour. During the winter months, what is Sam's opportunity cost of taking an hour off work to go skiing?
$11
In 2010, the total income of all US residents was about
$15 trillion
Monopolistic competition is characterized by which of the following attributions
(i) free entry, (ii), product differentiation, (iii) many sellers
In which of the following market structures is (are) there a large number of sellers
(i) monopolistic competition and (ii) perfect competition
If firms in a particular market similar or sell identical products, then the market is
(i) perfectly competitive or (iii) an oligopoly
Approximately how much of the income in the United States is earned by workers in the form of wages and fringe benefits
75 percent
Of the total income earned in the US economy, approximately
75 percent is earned by workers, and 25 percent is earned by owners of the land and capital
Which of the following event would lead to an increase in the supply of labor?
A country experiences an increase in immigrant labor
Which of the following is an example of a firm's derived demand?
A firm's demand for college textbooks study guide authors is inseparable linked to the study of the college textbooks
Patents, copyrights, and trademarks
All of the above are correct
Which of the following statements is correct?
All of the above are correct: If duopolist successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly Although the logic of self interest decreases a duopoly's price below the monopoly price, it does not push the duopolist to reach the competitive price Although the logic of self interest increases a duopoly's level of output above the monopoly level, it does not push the duopolist to reach the competitive level
If the wages of a dentists increase
All of the above are correct: So does her opportunity cost of leisure her hours of labor supplied may increase her hours of labor supplies may decrease
Capital, labor, and land
All of the above are correct: have derived demands are factors of production are inputs used in the production of goods and services
A concentration ratio
All of the above are correct: measures the percent of total output supplied b the four largest firms in the industry reflects the level of competition in an industry is related to the control that each firm has over price
Which of the following is a characteristic of a natural monopoly?
Average total cost declines over large regions of output
Which of the following is an example of barrier to entry?
Dick obtains a copyright for the new computer game that he invented
Fiona's hourly wage increases form $8 to $10. Which of the following describes a consequence of the increase in Fiona's wage?
Fiona may choose to work fewer hours due to the increase in her wage
Suppose that Jay-Z and Beyonce are duopolist in the music industry. In January they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By February, each singer is considering breaking the agreement what would you expect to happen next?
Jay-Z and Beyonce will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium will decrease
Which of the following is not an example of a barrier to entry?
Matt sells computers to his state government for use in their legislative sessions. He sold computers for ten years
Which of the following marker structures is considered a differentiated products market?
Monopolistic competition
Which of the following statements is correct?
Monopolistic competition is similar to perfect competition because both market structures are characterized by each seller being small compared compared to the market
Which government entity is charges with investigating and enforcing antitrust laws?
The US Justice Department
If nations such as Germany, Japan, and the United States prohibited international trade in auto mobiles, a likely effect would be that
The price effect would become more significant consideration for each firm that makes automobiles
Which of the following is necessarily a problem with antitrust laws?
They may target a business whose practices appear to be anti competitive but in fact have legitimate purposes
The Sherman Act made cooperative agreements
a criminal conspiracy
An industry is a natural monopoly when
a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
In order to be successful, a cartel must
agree on the total level of production and on the amount produced by each member
A firm that is a natural monopoly
all of the above
Which of the following could increase the labor supply curve for computer-repair technicians?
an increase in immigration
The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. What is the concentration ratio for Industry A?
approximately 66%
Natural monopolies differ from other forms of monopolies because they are
are generally not worried about competition eroding their monopoly position in the market
Your best friend receives a pay raise at her part-time job from $8 to $10 per hour. She used to work 20 hours per week, but now she decides to work 16 hours per week in order to spend more time studying economics. For this price range, her labor supply curve is
backward sloping
A monopoly market is characterized by
barriers to entry
The fundamental cause of monopoly is
barriers to entry
The defining characteristics of a natural monopoly is
declining average total cost with increased production
The players in a two-person game are choosing between strategy X and strategy Y. If the second player chooses strategy X, the first players best outcome is to select X. If the second player chooses strategy Y, the first players best outcome is to select X. For the first player, strategy X is called a
dominant strategy
The simplest type of oligopoly is
duopoly
The defining characteristics of a natural monopoly is
economies of scale over the relevant range of output
A benefit to society of the patent and copyright laws is that those laws
encourage creative activity
The inputs used to produce goods and services are called
factors of production
An oligopoly would tend to restrict output and drive up price if
firms collude and behave like a monopoly
One characteristic of an oligopoly market structure is
firms in the industry have some degree of market power
Suppose that two poker players believe that they are superior players to the rest of the people at their table. Further suppose that the two players make an agreement to concede hands to each other in order to drive the other players from the game first. Economists would model such behavior as
game theory
Encouraging firms to invest in research and development and individuals to engage in creative endeavors such as writing novels is one justification for
government - created monopolies
Which of the following statements is true about patents and copyrights
i. they have benefits and costs ii. they leas to higher prices iii. they enhance the ability of monopolies to earn above - average profits
A typical firm in the US economy would be classified as
imperfectly competitive
The general term for market structures that fall somewhere between monopoly and perfect competition is
imperfectly competitive markets
Which of the following is not an example of a factor of production
interest
When there are economies of scale over the relevant range of output for a monopoly, the monopoly
is a natural monopoly
Assuming that oligopolists do not have the opportunity to collude, once they have received Nash equilibrium it
is always in their best interest to leave their quantities supplied unchanged
Because workers in the US economy receive most of the total income earned, which of the following factors of production is considered to be the most important?
labor
Which of the following is an example of a factor of production?
land
Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has
less market power than it would otherwise have
The equilibrium price in a market characterized by oligopoly is
lower than in monopoly markets and higher than in perfectly competitive markets
A monopolistically competitive industry is characterized by
many firms selling products that are similar but not identical
The two types of imperfectly competitive markets are
monopolistic competition and oligopoly
Which of the following is an example of a monopolistically competitive industry?
movies
A market structure with only a few sellers, each offering similar o identical products, is known as
oligopoly
The commercial jetliner industry consisting of Boeing and Airbus would best be described as a(n)
oligopoly
Firms in industries that have competitors but do not face so much competition that they are price takers are operating in either a(n)
oligopoly or monopolistically competitive market
If there are many firms participating in a market, the market is either
perfectly competitive or monopolistically competitive
Consider a market served by a monopolists, Firm A. A new firm, Firm B, enters the market and, as a result, Firm A lowers its price to try to drive Firm B out of the market. This practice is known as
predatory pricing
As the number of firms in an oligopoly increases, the
price approaches marginal cost, and the quantity approaches the socially efficient level
If government officials break a natural monopoly up into several smaller firms, then
the average costs of production will increase
A cooperative agreement among oligopolists is more likely to be maintained
the more likely it is that the game among the oligopolists will be played over and over again
A household member's decision about how much labor to supply is most closely linked to
the tradeoff between leisure and work
Most markets are not monopolies in the real world because
there are reasonable substitutes for most goods
If a worker respond to an increase in the opportunity cost of leisure by taking less leisure, then his labor supply curve is
upward sloping