Microeconomics - Exam 3
If duopoly firms that are not colluding were able to successfully collude, then
price would rise and quantity would fall.
Total revenue equals
price × quantity
The deadweight loss associated with a monopoly occurs because the monopolist
produces an output level less than the socially optimal level.
Which of the following examples illustrates an oligopoly market?
A city with two firms who are licensed to sell school uniforms for the local schools
Which of the following firms is the closest to being a perfectly competitive firm?
A grain farmer in Illinois
Which of the following would be most likely to have monopoly power?
A local cable TV provider
Which of the following is not an example of a barrier to entry?
An entrepreneur opens a popular new hair salon
For an individual firm operating in a competitive market, marginal revenue equals
average revenue and the price for all levels of output
Which of the following is not a characteristic of a competitive market?
Entry is limited
Which of the following is true about a monopolistically competitive firm?
It can earn an economic profit in the short run, but not the long run.
Two CEOs from different firms in the same market collude to fix the price in the market. This action violates the
Sherman Antitrust Act of 1890.
Which of the following represents the firm's short-run condition for shutting down?
Shut down if TR < VC
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?
U.S. Postal Service
Which of the following statements about oligopolies is not correct?
Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal costs.
If a firm produces nothing, which of the following costs will be zero?
Variable cost
Which of the following expressions is correct?
accounting profit = economic profit + implicit costs
In monopolistically competitive markets, free entry and exit suggests that
all firms earn zero economic profits in the long run
The average fixed cost curve
always declines with increased levels of output
For a monopolistically competitive firm,
at the profit-maximizing quantity of output, marginal revenue equals marginal cost.
Marginal cost is equal to average total cost when
average total cost is at its minimum
When marginal cost is less than average total cost,
average total cost is falling
The fundamental source of monopoly power is
barriers to entry
A monopoly can earn positive profits because it
can maintain a price such that total revenues will exceed total costs.
Price discrimination
can maximize profits if the seller can prevent the resale of goods between customers.
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.
Monopoly firms face
downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve.
The equilibrium quantity in markets characterized by oligopoly is
higher than in monopoly markets and lower than in perfectly competitive markets
A benefit to society of the patent and copyright laws is that those laws
encourage creative activity
When new firms enter a perfectly competitive market,
existing firms may see their costs rise if more firms compete for limited resources.
For any competitive market, the supply curve is closely related to the
firms' costs of production in that market
Competitive markets are characterized by
free entry and exit by firms
In both perfect competition and monopolistic competition, each firm
has many competitors
A difference between explicit and implicit costs is that
implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
Assuming the firm is maximizing profit, this firm is operating
in the short run and earning a positive economic profit
In the long run,
inputs that were fixed in the short run become variable.
A firm that shuts down temporarily has to pay
its fixed costs but not its variable costs.
Economies of scale occur when
long-run average total costs fall as output increases
A monopolistically competitive industry is characterized by
many firms, differentiated products, and free entry
The minimum points of the average variable cost and average total cost curves occur where the
marginal cost curve intersects those curves.
The two types of imperfectly competitive markets are
monopolistic competition and oligopoly
Selling the same good at different prices to different customers is known as
price discrimination.
When buyers in a competitive market take the selling price as given, they are said to be
price takers.
Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,
price will exceed marginal cost
A similarity between monopoly and monopolistic competition is that in both market structures
sellers are price makers rather than price takers
In monopolistically competitive markets, economic losses
suggest that some existing firms will exit the market
When fixed costs are ignored because they are irrelevant to a business's production decision, they are called
sunk costs
A government-created monopoly arises when
the government gives a firm the exclusive right to sell some good or service.
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.
As the number of firms in an oligopoly increases,
the total quantity of output produced by firms in the market gets closer to the socially efficient quantity.
A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system, to be sold as one unit. This practice is known as
tying
Cartels are difficult to maintain because
each firm has an incentive to deviate from its agreed output level.
Whenever a cartel in a duopoly breaks down,
total output in the market will rise.