Microeconomics - Test 3

If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is

2,500

Refer to the data. The Herfindahl index for this industry is

2,950

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $32, the competitive firm should produce

8 units at an economic profit of $16

Refer to the provided graph for a purely competitive firm in the short run. Profits would be maximized if the firm produces which level of output?

B

Which of the following distinguishes the short run from the long run in pure competition?

Firms can enter and exit the market in the long run but not in the short run.

Assume the top six firms comprising an industry have market shares of 10, 8, 8, 5, 5 and 4 percent. The remaining 30 firms each have market shares of 2 percent. The Herfindahl index for this industry is

HHI = 414

In the United States cartels are

in violation of the antitrust laws.

As a general rule, oligopoly exists when the four-firm concentration ratio

is 40 percent or more.

An industry having a four-firm concentration ratio of 85 percent

is an oligopoly.

The marginal revenue curve of a purely competitive firm

is horizontal at the market price

Refer to the above graph of representative firm and monopolistic competition. If curve (2) represents ATC and line (3) represents demand, then we can conclude that the industry

is in long-run equilibrium.

A significant difference between a monopolistically competitive firm in a purely competitive firm is that the

latter's demand curve is perfectly elastic.

Assume a purely competitive increasing-cost industry is in the long-run equilibrium. If a decline and demand occurs, firms will

leave the industry, price will fall, and quantity produced will fall.

Monopolistic competition means

many firms producing differentiated products.

Curve (2) in the diagram is a purely competitive firm's

marginal revenue curve

The monopolistically competitive seller maximizes profit by producing at the point where

marginal revenue equals marginal cost MR = MC

When a firm is maximizing profit, it will necessarily be

maximizing the difference between total revenue and total cost

An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of

monopolistic competition

Mutual interdependence means that each oligopolistic firm

must consider the reactions of its rivals when it determines its price policy.

Which of the following is a unique feature of oligopoly?

mutual interdependence

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

new firms will enter this market.

Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because

of product differentiation and consequent product promotion activities.

A purely competitive firm is precluded from making economic profits in the long run because

of unimpeded entry to the industry.

A competitive firm will maximize profits at that output at which

total revenue exceeds total cost by the greatest amount.

Curve (3) in the diagram is a purely competitive firm's

total revenue curve

The total revenue of a purely competitive firm from selling six units of output is $48. Based on this information, the unit price of the output must be

$8

If columns (1) and (3) of the demand data shown are this firm's demand schedule, the profit-maximizing price will be

$9.

Pure competition results in a lower price for identical output level compared to those in monopolistic competition.

False

The long-run market supply curve would be downward sloping if the representative firms'

ATV curves shift down as the industry expands.

The kinked-demand curve model shows that oligopolistic firms tend to change their prices frequently.

False

Which of the following outcomes is consistent with a purely competitive market in the long-run equilibrium?

Combined consumer and producer surplus will be maximized.

Productive efficiency refers to

Cost minimization, where P= minimum ATC

Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium output will be

D.

The automobile, household appliance, an automobile tire industries are all illustrations of

Differentiated oligopoly.

In the long-run, monopolistically competitive firms make normal profits because they are forced to operate at the minimum point on their average total cost curve.

False

Potential entry by new firms and competition from imports tend to worsen the economic inefficiency in an oligopoly.

False

Monopolistic competition resembles per competition because

In both industries barriers to entry or either weak or nonexistent.

Which of the following is true concerning purely competitive industries?

In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.

A monopolistically competitive firm's marginal revenue curve

Is downsloping in lies below the demand curve.

A purely competitive firm can be identified by the fact that

Its average revenue equals marginal revenue

Allocative efficiency occurs when the

Marginal cost equals the marginal benefit to society

I'm which set of market models are there the most significant barriers to entry?

Oligopoly and pure monopoly

Monopolistic competition is characterized by firms

Producing differentiated products

The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that

Product price is constant on all levels of output

The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that as long run adjustments consequently occur, the firms in the industry will find that

Profits will decrease

Refer to the diagram. This firm's demand and marginal revenue curves are based on the assumption that

Rivals will ignore a price increase but match a price decrease.

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates in monopolistic competitor?

Subway Sandwiches

Which of the following is not a necessary characteristic of a purely competitive industry?

The industry or market demand is highly elastic.

In a purely competitive industry,

There may be economic profits in the short run but not in the long run.

As firms exit from a monopolistically competitive industry in the long run, the remaining firms' profits will begin to rise.

True

The demand curve of a monopolistically competitive producer is less elastic than that of a purely competitive producer.

True

The excess capacity problem associated with monopolistic competition implies that fewer firms good produce the same industry and put out a lower total cost.

True

The operation of the invisible hand means the pursuit of private interest promote social interest in pure competition

True

Xavier produces and sells tomatoes in a purely competitive market. This implies that Xavier's marginal revenue from an extra unit of tomatoes is always equal to the

Unit price

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, it's marginal revenue

Will also be $5

Oligopolistic industries are characterized by

a few dominant firms and substantial entry barriers.

Which constitutes an obstacle to collusion among oligopolists?

a large number of firms

A breakdown in price leadership leading to successive rounds of price cuts is known as

a price war

Refer to the diagram. In short-run equilibrium, the monopolistically competitive firm shown will set its price

above ATC

OPEC provides an example of

an international cartel.

Economists would describe the U.S. automobile industry as

an oligopoly

Which of the following is the best example of oligopoly?

automobile manufacturing

Refer to the diagram, which pertains to a purely competitive firm. Curve C represents

average revenue and marginal revenue

Which of the following is not a basic characteristic of pure competition?

considerable nonprice competition

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. We know that when this market reaches equilibrium, the marginal

cost equals marginal benefit.

Secret conspiracies to fix prices are examples of

covert collusion

An industry that has increasing returns to scale and fixed factor prices will have a long-run supply curve that is

downward sloping

The long-run supply curve under pure competition will be

downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry.

The mutual interdependence that characterizes oligopoly arises because

each firm in an oligopoly depends on its own pricing strategy and that of its rivals.

If the competitive firm depicted in the diagram produces output Q, it will

earn a normal profit

Oligopolistic firms engage in collusion to

earn greater profits

In the long-run equilibrium a purely competitive firm will operate where price is

equal to MR, MC, and minimum ATC.

The study of how people behave and decide in strategic situations is called

game theory

A two-player game in which one player's gain is not completely offset by the other player's loss is called a

positive-sum game

The goal of product differentiation in advertising in monopolistic competition is to make

price less of a factor and product differences more of a factor in consumer purchases.

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

product differentiation allows each firm some degree of monopoly power.

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic

profit of $480.

If a firm has at least some control over the price of its product, then the firm cannot be in which market model?

pure competition

In which market model would there be a unique product for which there are no close substitutes?

pure monopoly

Local electric or gas utility companies mostly operate in which market structure?

pure monopoly

In which of the following market models do demand and marginal revenue diverge?

pure monopoly, oligopoly, and monopolistic competition

In which of these continuums of degrees of competition (lowest to highest) is oligopoly properly placed?

pure monopoly, oligopoly, monopolistic competition, pure competition.

Long-run competitive equilibrium

results in zero economic profits.

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $25, the firm will

shut down and incur a $50 loss.

Allocative efficiency means that

society's scarce resources are used to produce products that align with consumer preferences.

If firms enter a purely competitive industry, then in the long run this change will shift the industry

supply curve to the right, and the individual firm's demand curve will shift down.

In the context of analyzing economic efficiency, we can interpret the market supply curve to be showing

the marginal opportunity cost to produce each unit of the product.

Monopolistically competitive and purely competitive industries are similar in that

there are few, if any, barriers to entry.

One difference between monopolistic competition in pure competition is that

there is some control over price in monopolistic competition.

Economists use the term imperfect competition to describe

those markets that are not purely competitive.