exam 4

One characteristic of an oligopoly market structure is

firms in the industry have some degree of market power

When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customers'

geographical location

For a firm to price discriminate,

it must have some market power

In imperfectly competitive markets, increasing production will decrease the price of all units sold. This concept is known as the

price effect

A similarity between monopoly and monopolistic competition is that in both market structures

sellers are price makers rather than price takers

A monopolistically competitive firm chooses

the quantity of output to produce, but the price of its output is determined by demand

In a market that is characterized by imperfect competition,

there are at least a few firms that compete with another

A natural monopoly occurs when

there are economies of scale over the relevant range of output.

When the loss from a business-stealing externality exceeds the gain from a product-variety externality,

there are likely to be too many firms in a monopolistically competitive market

Price discrimination is a rational strategy for a profit-maximizing monopolist when

there is no opportunity for arbitrage across market segments

Figure 16-2. This figure depicts a situation in a monopolistically competitive market. Refer to figure 16-2. What price will the monopolistically competitive firm charge in this market?

$30

Which of the following is not an example of price discrimination by a firm?

A natural gas company charging all customers a higher rate in the winter than in the summer

Which of the following is not an example of a barrier to entry?

an entrepreneur opens a popular new hair salon

Which of the following is not an argument made by critics of advertising?

Advertising promotes economies of scale

Which of the following statements is not correct?

Antitrust laws automatically prevent mergers between companies that produce similar products

Which of the following can defeat the profit-maximizing strategy of price discriminatin?

Arbitrage

Which of the following statements is not correct?

Both monopolistic competition and perfect competition are characterized by product differentiation.

Firms in the industry are typically characterized by very diverse product lines.

Firms in the industry have some degree of market power

Which of the following industries has the highest concentration ratio?

Households appliances

Which of the following is true about a monopolistically competitive firm?

It can earn an economic profit in the short run, but not in the long run

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

Monopolistic competition features many sellers

Which of the following statements is correct?

Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market?

Monopolistic competition only

Which of the following conditions is a characteristic of a monopolistically competitive firm in both the short run and the long run?

P > MC

Which of the following conditions is a characteristic of a monopolistically competitive firm in short-run equilibrium?

P > MC

Selling the same good at different prices to different customers is known as

Price discrimination

Which of the following can eliminate the inefficiency inherent in monopoly pricing?

Price discrimination

The law passed in 1914 that strengthened the government

The Clayton Antitrust Act

Which of the following is a necessary characteristic of a monopoly?

The firm is the sole seller of its product

Which of the following is an example of public ownership of a monopoly?

USPS

Which of the following is not an example of price discrimination?

a bakery charges a higher price for brownies than for cookies

When an industry is a natural monopoly,

a larger number of firms will lead to a higher average total cost

Which of the following would be most likely to have monopoly power?

a local cable TV provider

Granting a pharmaceutical company a patent for new medicine will lead to

a product that is priced higher than it would be without exclusive rights

Monopolies are socially inefficient because the price they charge is

above marginal cost

In monopolistically competitive markets, free entry and exit suggests that

all firms can earn zero economic profits in the long run

A market structure with only a few sellers, each offering similar or identical products, is known as

an oligopoly

The market for crude oil, which is primarily supplied to the world by a few Middle Eastern countries, would best be described as

an oligopoly

Critics of markets that are characterized by firms that sell brand-name products argue that brand names encourage consumers to pay more for branded products that

are indistinguishable from generic products

For a monopolistically competitive firm,

at the profit-maximizing quantity of output, marginal revenue equals marginal cost.

When a firm has a natural monopoly, the firm's

average total cost curve is downward sloping

The fundamental source of monopoly power is

barriers to entry

In order for antitrust laws to raise social welfare, the government must

be able to determine which mergers are desirable and which are not

If a firm in a monopolistically competitive market successfully use advertising to decrease the elasticity of demand for its product, the firm will

be able to increase its markup over marginal cost

Price discimination

can maximize profits if the seller can prevent the resale of goods between consumers

If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will

be able to increase its markup over marginal cost

Haidy consumes Pepsi exclusively. She claims that there is a clear taste difference and that competing brads of cola leave an unsavory taste in her mouth. In a blind taste test, Haidy is found to prefer Pepsi to store-brand cola nine out of ten times. The results of Haidy's taste test would refute claims by critics of brand names that

brand names cause consumers to perceive differences that do not really exist

When existing firms lose customers and profits due to entry of a new competitor, a

business-stealing externality occurs

A monopoly can earn positive profits because it

can maintain a price such that total revenues will exceed total costs

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it

can prevent children from buying the lower-priced tickets and selling them to adults

When a firm operates under conditions of monopoly, its price is

constrained by demand

if a monopolist is able to perfectly price discriminate,

consumer surplus and deadweight losses are transformed into monopoly profits

The product-variety externality is associated with the

consumer surplus that is generated from the introduction of a new product

The social cost of a monopoly is equal to its

deadweight loss

When a monopolist increases the amount of output that it produces and sells, average revenue

decreases, and marginal revenue decreases

Monopoly firms face

downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve

If a government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will

earn economic losses

A benefit to society of the patent and copyright laws is that those laws

encourage creative activity

In both perfect competition and monopolistic competition, each firm

has many competitors

A monopolist's profits with price discrimination will be

higher than if the firm charged just one price because the firm will capture more consumer surplus

the equilibrium quantity in markets characterized by oligopoly is

higher than in monopoly markets and lower than in perfectly competitive markets

Reduced competition through merging of companies will raise social welfare

if the benefit from the synergies exceeds the social cost of increased market power

In a natural monopoly,

if the government requires marginal cost pricing, it will likely have to subsidize the firm

Price discrimination adds to social welfare in the form of

increased total surplus

A firm cannot price discriminate if it

it operates in a competitive market

Suppose most people regard emeralds, rubies, sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has

less market power than it would otherwise have

In the long run, a monopolistically competitive firm produces a quantity that is

less than the efficient scale

In order to sell more of its product, a monopolist must

lower its price

A monopolistically competitive industry is characterized by

many firms, differentiated products, and free entry

A perfectly price-discriminating monopolist is able to

maximize profit and produce a socially optimal level of output

In the short run, a firm in a monopolistically competitive market operates much like a

monopolist

The two types of imperfectly competitive markets are

monopolistic competition and oligopoly

In which of the following market structures can firms earn economic profits in the long run?

monopoly only

If the distribution of water is a natural monopoly, then

multiple firms would likely each have to pay large fixed costs to develop their own network of pipes

Which of the following is not a key feature of monopolistic competition?

negative economic profits for firms in the long run

in a long-run equilibrium,

only a perfectly competitive firm operates at its efficient scale

When a market is monopolistically competitive, the typical firm in the market is likely to experience a

positive or negative profit in the short run and zero profit in the long run

The relationship between advertising and product differentiation is

positive; the more differentiated the product, the more a firm is likely to spend on advertising

Antitrust laws have economic benefits that outweigh the costs if they

prevent mergers that would decrease competition and raise the costs of production

For a monopoly, the socially efficient level of output occurs where

price equals marginal cost

Monopolistic competition is considered inefficient because

price exceeds marginal cost

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,

price will exceed marginal cost

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level

In the short run, a firm operating in a monopolistically competitive market

produces an output where marginal revenue equals marginal cost, and the price is determined by demand

Defenders of advertising argue that in some markets advertising may

provide information to customers about products, including prices and seller locations

When a monopolistically competitive firm raises its price,

quantity demanded declines but not to zero

A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to

reduced efficiency of local lodging markets

Professional organizations and producer groups have an incentive to

restrict advertising in order to reduce competition on the basis of price

If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm

sole ownership of the right to sell the drug for a limited number of years

In monopolistically competitive markets, economic losses

suggest that some existing firms will exit the market

According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication oft his theory is that

the existence of an expensive advertisement is more important than the content of the advertisement

When a profit-maximizing firm in a monopolistically competitive market changes a price higher than marginal cost

the firm may be incurring economic losses

A government-created monopoly arises when...

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

One problem with the government operation of monopolies is that

the government typically has little incentive to reduce costs

If we observe a great deal more advertising for Mucinex, an over-the-counter drug, than for a Grainger drill press, we can infer that

the market for Mucinex is more highly differentiated than the market for Grainger drill presses

Arbitrage is

the process of buying a good in one market a low price and selling the good in another market for a higher price in order to profit from the price difference

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly

will experience a loss