Eco 202- Test 3
Which of the following is NOT a characteristic of long-run equilibrium in a monopolistically competitive market?
Production is at minimum average total cost
Suppose that Carolina Beach only has three movie theaters. One movie theater decreases price and later that same day, the other two follow and do the same. Which of the following is true?
The first firm to lower prices probably the implicit price leader.
Suppose Toor's beer is sold in a monopolistically competitive market. In the long run we expect the price of Toor's beer to:
equal the average cost of production of Toors beer
For a competitive firm, marginal revenue is ________ price, whereas for a monopolist marginal revenue is ____ price
equal to; less than
When _______ substitutes exist, a monopolist has ______ power to raise price.
fewer; more
Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that
firms can earn normal profits
An oligopolistic industry is characterized by all the following EXCEPT
firms pursuing aggressive business strategies, independent of rivals strategies
Which of the following characteristics is NOT common to monopolistic competition and perfect competition?
firms take market prices as given
A patent or copyright is a barrier to entry based on
government action to protect a producer
Profit maximizing monopoly's price is
greater than the price that would prevail if the industry was perfectly competitive
Unlike a monopolistic firm's product, a monopolistically competitive firms product
has many close substitutes
To be a natural monopoly a firm must
have economies of scale that are larger that is can supply the entire market at a lower cost than two or more firms
Monopolies, Oligopolies, and monopolistic competitive industries all
have market power
A monopolist competitive firm will
have some control over its price because its product is differentiated
A monopolistically competitive firm will
have some control over its price because its product is differentiated
Perfect competition is characterized by all the following except
heavy advertising by individual sellers
Product differentiation that makes a product better for some consumers and worse for others is
horizontal differentiation
Which of the following is a characteristic of a monopolistically competitive market? i. there are many sellers ii. firms sell slightly differentiated products iii. the demand curve facing each individual firm is horizontal
i and ii only
Assume someone organizes all farms in the nation into a monopoly. Which of the following occurs i. consumer surplus decreases ii. economic profit of the firm increases iii. a deadweight loss is created
i, ii, and iii
A monopoly differs from monopolistic competition in that
in a monopoly there are significant entry barriers but there are low barriers to entry in a monopolistically competitive market structure
Product differentiation that makes the product better from everyone's perspective
is known as vertical differentiation
Product differentiation that makes the product better than a rival's product from everyone's perspective
is known as vertical differentiation
Case for advertising includes the fact that
it provides consumers with valuable information about product availability, quality, and price
The case of advertising includes the fact that
it provides consumers with valuable information about product availability, quality, and price
A form of industry structure characterized by a few firms each large enough to influence market price is
oligopoly
The four largest firms account for approximately 90% of U.S. beer sales. The U.S. beer industry would be best classified as a(n)
oligopoly
The market structure in which the behavior of any given firm depends on the behavior of the other firms in the industry is
oligopoly
Firms do not have market power in which of the following market structures?
perfect competition only
Price is NOT a firm decision variable in a(n)_____ industry
perfectly competitively
When monopolistically competitive firms earn ____ profits, other firms _____ the industry in the long run.
positive economic; enter
A monopolistically competitive firm maximizes profit by producing where
price is greater than marginal cost
Monopolistically competitive firms use ______ to achieve market power
product differentiation
If a restaurant was a natural monopoly, dividing the restaurant equally not two separate restaurants would
raise average total cost
Market power refers to a firm's ability to
raise price without losing all sales of its products
A coffee manufacturer raises the price of its coffee by 12%, and the quantity demanded of its coffee falls by only 5%. This firm has
some market power
All of the following are characteristics of monopolistically competitive industries EXCEPT
strategic behavior
Suppose that Carolina Beach only has three movie theaters. One movie theater decreases price and later that same day, the other two follow and do the same. Which of the following is true?
the first firm to lower price is probably the implicit price leader.
The demand curve that a monopolist faces is
the market demand curve
In perfect competition
the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic
In an oligopolistic industry, the price firms charge and the quantity they produce would be the same as if the industry was a monopoly if
the oligopolist collude
A form of oligopoly in which a dominant firm set the price of all smaller firms in the industry follow the dominant firm's pricing policy is called
the price-leadership model
When a market has barriers to entry,
then in the long run it might be possible for the firms to make a positive economic profit
An oligopolist differs from a perfect competitor in that
there are no entry barriers in perfect competition but there are entry barriers in oligopoly
A monopoly is characterized by all of the following except
there are only a few sellers each selling a unique product
If a monopolist's marginal revenue is $35 per unit and its marginal cost is $25, then
to maximize profit the firm should increase output
What is the profit-maximizing rule for a monopolistically competitive firm?
to produce a quantity such that marginal revenue equals marginal cost
Which of the following statements is true?
unlike other firms, a monopolists demand curve is the same as the market demand curve
A monopoly is a seller of a product
without a close substitute
Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?
No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close.
A firm will break even when
P=ATC
a monopolistically competitive firm faces a downward-sloping demand curve because
of product differentiation
When monopolists perfectly price discriminate, they
All of the above are correct
A market served by only one firm is called a:
Monopoly
Strategic behavior characteristics a(n) _____ industry.
oligopolistic
Which of the following is a characteristic of monopolistically competitive market? I. Each firm is a price-taker. II. Firms sell slightly differentiated products. III. Each firm faces a downward-sloping demand curve
II and III only
Jason, a high-demand student, mows lawns for families in his neighborhood. The going rate is $12 for each lawn-mowing service. Jason would like to charge $20 because he has more experience mowing lawns than the many other teenagers who also offer the same service. If the market for lawn mowing services is perfectly competitive, what would happen if Jason raised his price?
If Jason raises his price he would lose al his customers
Which of the following is ALWAYS true wen a monopolist maximizes its profit?
MR=MC
Which of the following is a characteristic of an oligopolistic market structure?
There are few dominant sellers
Which of the following is NOT a characteristic of a perfectly competitive market structure?
There are restrictions to entry by new firms.
Which of the following is a characteristics of monopoly?
There is only one seller in the market
Which of the following statements is true about monopolistically competitive firms?
Unlike perfectly competitive firms, monopolistically competitive firms are able to raise their prices without losing all of their customers
Consider the following characteristics: a. a market structure with barriers to entry Y b. demand curves that are horizontal N c. firm cannot make zero profits in the long run N d. firm can reap long run profits Y Which of the characteristics in the list above is shared by an oligopolist and monopolist?
a and d
___ is a group of firms colluding to make price and output decisions
a cartel
A monopolist faces
a downward-sloping demand curve
What is prisoner's dilemma?
a game in which players act in rational, self-interested ways that leave everyone worse off
The delivery of first-class mail by the U.S. Postal Service is an example of
a monopoly
Which of the following firms is likely to have the highest market power?
a monopoly
Compared to a monopolistic competitor, a monopolist faces
a more inelastic demand curve
Compared to monopolistic competitor, a monopolist faces
a more inelastic demand curve
_________ is a monopoly that exists in an industry where the large economies of scale acts as its barrier to entry.
a natural monopoly
Which of the following statements is FALSE?
a perfectly competitive firm produces MR=MC but a monopoly produces where MR>MC
Which of the following is a barrier to enter for monopoly? a. large economies of scale b. a patent c. government licensing d. all of the above
all of the above
Which of the following is not an example of price discrimination?
an ice cream parlor charges a higher price for ice cream than for sherbet
A firm faces a smaller number of competitors. This firm is competing in
an oligopoly
Which of the following is NOT an example of price discrimination? a. airlines charging lower prices to travelers who stay over a saturday night. b. back-to-school sales c. discounted coffee for senior citizens at restaurants d. student discounts at movie theaters
b. back-to-school sales
An oligopoly firm is similar to a monopolistically competitive firm in that
both firms have market power
Both monopolistically competitive firms and perfectly competitive firms maximize profits
by producing where marginal revenue equals marginal costs
The case against advertising includes the assertion that advertising
causes firms to spend huge sums of money creating artificial differences among goods
The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Website and in retail stores. Apple charges lower prices to college students and faculty members because (hint: price discrimination)
college students and faculty members have more ELASTIC demand for computers than the general public
Assume that firms in an oligopoly are current colluding to set price and output to maximize total industry profit. If the government forces the oligopolists to stop colluding, the price charges by the oligopolies will ____ and the total output produces will _____.
decease; increase
A monopolist's supply of a good is
dependent on the monopolist's demand curve and its marginal cost curve
In the long run firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits, but unlike perfectly competitive firms in the long run, monopolistically competitive firms
do not produce at minimum average total costs
Under the conditions of monopolistic competition:
economic profit is zero in the long run
Relative to a completely organized industry, a monopoly is more likely to produce
less output, charges higher price, and earns economic profits
The demand schedule of a monopolistically competitive firm when compared to the demand schedule of a perfectly competitive firm is
less price elastic
If a monopoly wants to sell a greater quantity of output, it msut
lower its price
In the long-run equilibrium, compared to perfectly competitive market, a monopolistically competitive industry produces a ____level of output and charges a _____ price
lower; higher
A large number of firms in Richland sell energy drinks. However, each firm faces a downward sloping demand curve. The market for energy drinks in Richland is an example of a(n)
monopolist competition
In San Francisco there are many restaurants. Each restaurant is slightly different from every other restaurant. Restaurants are an example of which market structure?
monopolistic competition
There are several jewelry manufacturers in Richland. However, the jewelry produced by different manufacturers has different designs and the products are never identical. The jewelry market in Richland is an example of ______.
monopolistically competitive market
The demand facing a monopolistically competitive firm is ____ a monopolistic firm and ____ a perfectly competitive firm.
more elastic than; less elastic than
Relative to a monopolized industry, a competitive organized industry produces ____ output, charges ____ prices, and earns _____.
more; lower; only a normal profit
With perfect price discrimination there is
no deadweight loss
