Exam 3- Principles of Microeconomics (Spring 2018)

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she must charge $20,000 each. The quantity effect of selling the sixth motor home is: A) $20,000 B) $10,000 C) $15,000 D) $21,000

A) $20,000

In general, oligopolists find it easier to engage in collusive behavior when the industry is characterized by __________ behavior A) Cournot B) Bertrand C) noncooperative D) interdependent

A) Cournot

An oligopoly knows that its ______ affect its _____ and that the _________ of its rivals will affect it A) actions; rivals; reactions B) price changes; total revenue in a positive way; reactions C) actions rarely; rivals; actions D) price increases; total revenue in the long run only; large but not small price changes

A) actions; rivals; reactions

Suppose a monopoly is producing the level of output where marginal revenue equals marginal cost. If the monopolist reduces output, it: A) can charge a higher price B) will increase profits C) will decrease marginal revenue D) can charge a higher price and it will increase profits

A) can charge a higher price

If the only two firms in an industry agree to fix the price at a given level, this is an example of: A) collusion B) satisfying demand C) price extortion D) price leadership

A) collusion

The most important source of oligopoly is: A) economies of scale B) government-created barrier C) technological superiority D) ownership of resources

A) economies of scale

A monopoly responds to an increase in marginal cost by ______ price and _______ output A) increasing; decreasing B) increasing; increasing C) decreasing; increasing D) decreasing; decreasing

A) increasing; decreasing

Compared to a perfectly competitive market, a monopolist will produce _________ and charge a _________ price. A) less; higher B) less; lower C) more; higher D) more; lower

A) less; higher

Suppose a perfectly competitive firm can increase its profits by increasing its output. A) marginal revenue exceeds its marginal cost B) price exceeds its average variable cost, but is less than average total cost C) marginal cost exceeds its marginal revenue D) price exceeds its marginal revenue

A) marginal revenue exceeds its marginal cost

The market for dentists in most communities can be considered ____________ because there are a large number of similar, but not identical, substitutes in the market. A) monopolistic competition B) a monopoly C) perfect competition D) an oligopoly

A) monopolistic competition

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have ________ on prices and beef is a _____ product A) no noticeable effect; standardized B) a huge effect; standardized C) a huge effect; differentiated D) no noticeale effect; differentiated

A) no noticeable effect; standardized

when a firm cannot affect the market price of the good that it sells, it is said to be a: A) price-taker B) natural monopoly C) dominant firm D) cartel

A) price-taker

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as: A) product differentiation B) barrier to entry C) market power D) patents and copyrights

A) product differentiation

An example of monopolistic competition is the ________ market. A) restaurant B) soft-drink C) automobile D) breakfast cereal

A) restaurant

Oligopoly is a market structure that is characterized by a: A) small number of independent firms producing identical or differentiated products B) small number of independent firms producing identical or differentiated products C) large numbers of relatively small independent firms producing differentiated products D) large number of relatively small independent firms producing identical products

A) small number of independent firms producing identical or differentiated products

The lowest point on the perfectly competitive firm's short-run supply curve corresponds to the minimum point on the ________ curve A) ATC B) AVC C) AFC D) MC

B) AVC

An industry dominated by a few firms, where each firm recognizes that its own choices will affect the choices of its rivals and vice versa, is: A) a monopoly B) an oligopoly C) characterized by monopolistic competition D) characterized by perfect competition

B) an oligopoly

Lenoia runs a natural monopoly producing electricity for a small mountain village. The barrier preventing other firms from competing with her is: A) her control of scarce natural resources B) economies of scale C) her technological superiority D) a government-created barrier

B) economies of scale

Which of the following industries is most likely to be monopolistically competitive? A) automobiles B) fresh bagel shops C) corn D) an electric utility

B) fresh bagel shops

In monopolistic competition, each firm: A) is a price-taker B) has some ability to set the price of its differentiated good C) will set price equal to marginal cost D) has marginal revenue that is greater than price

B) has some ability to set the price of its differentiated good

In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport. These Holiday Inn establishments are examples of product differentiation by: A) type B) location C) quality D) style

B) location

A(n) __________ is a single firm with ____________, whereas ___________ implies an industry with _______________ firm(s) that has (have) _____________. A) oligopoly; no barriers to entry; monopoly; many; easy entry and exit B) monopoly; barriers to entry; monopolistic competition; many; easy entry and exit C) monopoly; barriers to entry; oligopoly; few; no barriers to entry D) monopolistic competitor; barriers to entry; monopoly; one; barriers to entry

B) monopoly; barriers to entry; monopolistic competition; many; easy entry and exit

If a local California avocado stand operates in a perfectly competitive market, that stand owner will be a: A) price-maker B) price-taker C) price-discriminator D) price-maximizer

B) price-taker

A monopoly is likely to ___________ and __________ than a perfectly competitive firm A) produce more; charge more B) produce less; charge more C) produce more; charge less D) produce less; charge less

B) produce less; charge more

If rival gas stations in Reno limit production and _________ prices in a way that increases their profits, without meeting with one another in a formal way, this is known as __________ collusion. A) lower; tacit B) raise; tacit C) lower; explicit D) raise; explicit

B) raise; tacit

If a Florida strawberry wholesaler is in a perfectly competitive market, that wholesaler will have a _____ share of the market, and consumers will consider her strawberries to be ______. Therefore, ________ advertising will take place in this market. A) large; standardized; no B) small; standardized; little, if any C) small; differentiated; no D) large; differentiated; extensive

B) small; standardized; little, if any

Oligopoly is a market structure characterized by: A) independence in decision making B) uncertainty about behavior of rival firms C) substantial diseconomies of scale D) a large number of small firms

B) uncertainty about behavior of rival firms

Suppose that a monopolist increases production from 10 units to 11 units. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is: A) $1 B) $9 C) $19 D) $29

C) $19

The sum of the squared market shares of each firm in an industry is the: A) concentration ratio B) employment rate C) Herfindahl-Hirschman Index D) market number

C) Herfindahl-Hirschman Index

A monopoly is a market characterized by: A) a single seller B) a product with many close substitutes C) a large number of small firms D) a small number of large firms

C) a large number of small firms

If all firms in a industry are price-takers, then: A) each firm can take price that it wants to charge and sell at this price, provided it is not too different from the prices other firms are charging B) each firm takes the market price as given for its current output level, recognizing that the price will change if it alters its output significantly C) an individividual firm cannot alter the market price even if it doubles its ouput D) the market sets the price, and each firm can take it or leave it (by setting a different price)

C) an individual firm cannot alter the market price even if it doubles its output

In a perfectly competitive industry, the market demand curve is usually: A) perfectly inelastic B) perfectly elastic C) downward-sloping D) relatively elastic

C) downward-sloping

Game theory is commonly used to explain behavior in oligopolies, because oligopolies are characterized by: A) large profits in the long run B) either homogeneous or heterogeneous products C) interdependence D) imperfect competition

C) interdependence

The marginal revenue received by a firm in a perfectly competitive market: A) is greater than the market price B) is less than the market price C) is equal to its average revenue D) increases with the quantity of output sold

C) is equal to its average revenue

Suppose a monopolistically competitive firm can increase its profits by decreasing its output. Then it must be the case that at the current output. A) marginal revenue is less than zero B) price is less than marginal revenue C) marginal revenue is less than marginal cost D) price is less than average total cost

C) marginal revenue is less than marginal cost

An industry characterized by many firms, producing similar but differentiated products, in a market with easy entry and exit, is called: A) perfect competition B) monopoly C) monopolistic competition D) oligopoly

C) monopolistic competition

Due to the existence of a large number of similar, but not identical, substitutes in most communities, the market chiropractors is best considered: A) an oligopoly B) perfect competition C) monopolistic competition D) a monopoly

C) monopolistic competition

Microsoft and its operating system are often cited as an example of a company that grew into a monopolist through: A) ownership of a resource B) patents C) network externalities D) large economies of scale

C) network externalities

The market structure characterized by a few independent firms and in which there are barriers to entry is called: A) monopolistic competition B) perfect competition C) oligopoly D) monopoly

C) oligopoly

In the perfectly competitive guidebook industry, the market price is $35. A firm is currently producing 10,000 guidebooks; average total cost is $38, marginal cost is $30, and average variable cost is $30. The firm should: A) raise the price of guidebooks, because the firm is losing money B) keep output the same, because the firm is producing at minimum average variable cost C) produce more guidebooks, because the next guidebook produced increases profit by $5 D) shut down, because the firm is losing money

C) produce more guidebooks, because the next guidebook produced increases profit by $5

A perfectly competitive firm operating in the short run producing 100 units of output has ATC=$6 and AFC=$2. The market price is $3 and is equal to MC. In order to maximize profits (or minimize losses), this firm should: A) increase output B) reduce output, but continue to produce a positive amount of output C) shut down D) do nothing; the firm is already maximizing profits

C) shut down

Perfect competition is characterized by: A) rivalry in advertising. B) fierce quality competition C) the inability of any firm to influence price D) widely recognized brands

C) the inability of any firm to influence price

Market structures are categorized by the following two criteria: A) the number of firms and the size of the firms B) whether or not products are differentiated and the extent of advertising C) the number of firms and whether or not products are differentiated D) the size of the firms and the extent of advertising

C) the number of firms and whether or not products are differentiated

Which of the following is(are) true concerning monopoly? A) monopoly is at the opposite end of the spectrum from a perfectly competitive firm B) a monopoly has no rivals C) barriers to entry prevent other firms from entering the industry D) all of the statements are true

D) all of the statements are true

If the toothpaste market is monopolistically competitive, product differentiation will take place in which of the following forms? A) different varieties of toothpaste--including whitening agents B) differentiation in the locations where certain toothpastes are available C) quality differences among the various brands D) all of these forms

D) all of these forms

If a monopolist is producing a quantity that generates MC=P, then profit: A) is maximized B) is maximized only if MR=P C) can be increased by increasing production D) can be increased by decreasing production

D) can be increased by decreasing production

Which of the following is a barrier to entry? A) control of scarce resources B) economies of scale C) government-created barriers such as patents and copyrights D) control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

D) control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

For the monopolistically competitive seafood market, the demand curve for any individual firm is _______, and there are _____________ producers of seafood. A) downward-sloping; a few B) upward-sloping; many C) vertical; a few D) downward-sloping; many

D) downward-sloping; many

Monopolistic competition is similar to perfect competition in that firms in both market structures: A) are price-takers B) produce goods that are perfect substitutes C) vertical; a few D) downward-sloping; many

D) downward-sloping; many

Price-takers are individuals in a market who: A) select a price from a wide range of alternatives B) select the lowest price available in a competitive market C) select the average of prices available in a competitive market D) have no ability to affect the price of a good in a market

D) have no ability to affect the price of a good in a market

Suppose a monopolistically competitive firm is producing the profit-maximizing level of output and is earning an economic profit in the short run. Then: A) price is less than average total costs B) price is less than marginal cost C) marginal revenue is greater than marginal cost D) marginal revenue equals marginal cost

D) marginal revenue equals marginal cost

A competitive firm operating in the short run is maximizing profits and just breaking even. Its costs include a monthly license fee of $100 that is imposed by the state and must be paid for as long as the firm is in existence. The license fee is now raised to $150. To continue to maximize profits in the short run, the firm should: A) increase price B) increase output C) reduce output D) not change output

D) not change output

If there are two gas stations in the town of Smalltown, then the gasoline industry in Smalltown is probably best characterized as: A) perfect competitive B) monopolistic competitive C) monopolistic D) oligopolistic

D) oligopolistic

The industry characterized by a few interdependent firms where there are barriers to entry is called: A) perfect competition B) monopolistic competition C) monopoly D) oligopoly

D) oligopoly

To calculate the Herfindahl-Hirschman Index (HHI), one must: A) sum the market shares of the four largest firms in the industry B) sum the market shares of all firms in the industry C) divide the market share of the largest firm by the sum of the four largest firms in the industry D) sum the squared market shares of all firms in the industry

D) sum the squared market shares of all firms in the industry

Which of the following is not a characteristic of monopolistic competition? A) production differentiation B) lack of barriers to entry and exit in the long run C) many competing producers D) tacit collusion

D) tacit collusion

A monopoly can be temporary because of: A) high barrier to entry B) a lack of substitutes for the monopolist's product C) economies of scale D) technological change

D) technological change

A monopolistically competitive industry such as baked goods and a perfectly competitive industry like wheat farming are alike in that: A) firms in both types of industries produce identical products B) firms in both types of industries produce similar but not identical products C) barriers to entry in both industries are large D) there are many firms in each industry

D) there are many firms in each industry

If price is consistently below average total cost, then in the short run a perfectly competitive firm should: A) shut down B) continue to produce to minimize losses C) raise price D) there is not enough information given to answer this question

D) there is not enough information given to answer this question