Eco Final Exam

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The major difference between monopolistic competition and monopoly is

only a monopoly can earn an economic profit in the long run.

Cynthia is an Oklahoma wheat farmer. The demand for her wheat is

perfectly elastic.

If the price is less than a perfectly competitive​ firm's minimum average variable​ cost, the firm

shuts down and incurs an economic loss equal to total fixed cost.

If the HHI for the widget industry is​ 1,200, then the market structure is

monopolistic competition.

Which of the following fourminus−firm concentration ratios would be the best indication of a perfectly competitive​ industry?

2 percent

The table above shows the revenue figures for the top four firms along with a total for the remaining firms in the fastminus−food industry. What is the fourminus−firm concentration ratio for the​ industry?

20 percent

Which of the following fourminus−firm concentration ratios is consistent with monopolistic​ competition?

25 percent

What is the fourminus−firm concentration ratio if the four largest firms in an industry account for 5​ percent, 6​ percent, 7​ percent, and 8 percent of total​ revenue?

26 percent

Computer memory chips are produced on​ wafers, each wafer having many separate chips that are separated and sold. The above table shows costs for a perfectly competitive producer of computer memory chips. If the market price of a wafer is​ $2,400 dollars, how many wafers will the firm​ produce?

4 or 5

Bill owns a lawnminus−care company in​ Windermere, Florida, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals​ $32 per lawn mowed. At this​ price, how many lawns will Bill mow per​ week?

40

If there are four firms in an industry with market shares of 50​ percent, 40​ percent, 5​ percent, and 5​ percent, the Herfindahlminus−Hirschman Index is

4150.

Which of the following must exist for a firm to engage in price​ discrimination?

The firm must be able to identify and separate its buyers into different​ classes, and the lowminus−price buyers cannot resell the product to the highminus−price buyers.

Which of the following is a characteristic of​ monopoly?

There are barriers to enter the market.

A group of firms that has entered into an agreement to restrict output and increase prices and profits is called

a cartel.

What does monopolistic competition have in common with​ monopoly?

a downwardminus−sloping demand curve

If the technology for producing a good enables one firm to meet the entire market demand at a lower average total cost than two or more firms​ could, then that firm has

a natural monopoly.

A major characteristic of monopoly is

a single seller of a product.

A firm faces a small number of competitors. This firm is competing in

an oligopoly.

​Sammy's Inc. competes with a few other firms because there are natural barriers to entry.​ Sammy's operates in

an oligopoly.

Collusion results when a group of firms i. act separately to limit​ output, lower​ prices, and decrease economic profits. ii. act together to limit​ output, raise​ prices, and increase economic profits. iii. in the United States legally fix prices.

ii only

A monopoly will arise if

the town council passes a law granting​ Nick's Pizza the exclusive right to operate in that town.

If a perfectly competitive wheat farmer is maximizing its profit and then increases its​ output, the​ farmer's

total revenue​ increases, but total cost rises by more so that the​ farmer's total profit decreases.

In the​ 1970s, when a gasoline price ceiling was imposed that was below the equilibrium price of​ gasoline, some gas stations required that buyers of gas also purchase other products sold at the station. This policy is an example of which of the​ following?

tying arrangements

The above figure shows a perfectly competitive firm. If the market price is​ $5 per​ unit, the firm

will definitely shut down to minimize its losses.

The above figure shows a perfectly competitive firm. If the market price is​ $15 per​ unit, the firm

will stay open to produce and will incur an economic loss.

The above figure shows a perfectly competitive firm. If the market price is​ $20 per​ unit, the firm

will stay open to produce and will make zero economic profit.

If both firms in a duopoly increase their production by one unit beyond the monopoly​ output, each​ firm's profit​ ________ and the total profit of the duopoly​ ________.

​decreases; decreases

A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will​ ________ and eventually there will be​ ________.

​fall; exit by existing firms

Entry and exit continue in monopolistic competition until the remaining firms are

earning zero economic profit.

The cranberry market is perfectly competitive. Reports that consuming cranberries can lead to improved health result in a permanent increase in the demand for cranberries and an immediate upward jump in the price of cranberries. As time​ passes, the price of cranberries​ ________ and the initial​ firms' economic​ ________.

​falls; profit will be eliminated

Which of the following is a legal barrier to​ entry? ​i) public franchise ​ii) government license ​iii) patent

​i, ii, and iii

If a duopoly has reached the monopoly outcome and only one firm increases its​ production, that​ firm's profit​ ________ and the other​ firm's profit​ ________.

​increases; decreases

The above table has the total revenue and total cost schedule for​ Omar, a perfectly competitive grower of rutabagas. When Omar produces 2 bushels of​ rutabagas, his total profit equals

-$8

Which of the following statements about price discrimination is​ false?

All forms of price discrimination are illegal.

Which of the following is TRUE about a firm in monopolistic competition in the long​ run?

P​ = ATC

Which of the following is true of monopolistic competition in longminus−run ​equilibrium?

P​ = ATC and MR​ = MC

In the above​ figure, the output of an oligopoly will range between

Q1 and Q2.

Which of the following is an example of a natural​ monopoly?

Florida Power and​ Light, an electric utility in Florida

Which of the following statements is​ correct?

If firms in oligopoly look only at their own selfminus−interest in deciding the output they should​ produce, the total market output will exceed that of a monopoly.

The players in a game theory situation often do not act in their joint interest because of which of the​ following?

It is not in each​ player's selfminus−interest to cooperate.

When oligopolies seek to operate as a singleminus−price ​monopoly, the firms produce at the point​ where:

MR​ = MC.

If a​ firm, Best Computer​ Buys, requires its customers to buy software from it whenever the customers purchase a​ computer, the​ company's policy is called

a tying arrangement.

The​ women's dress industry is monopolistically competitive because each firm has

a very small market share.

A monopoly is

able to set the price for its product.

For the perfectly competitive broccoli producers in​ California, the market demand curve for broccoli is

downward sloping.

A Nash equilibrium is defined as

each player taking the best possible action given the action of the other player.

In monopolistic​ competition, profit is maximized by producing so that marginal revenue

equals marginal cost and which are less than price.

When firms in monopolistic competition incur an economic​ loss, some firms will

exit the​ industry, and demand will increase for the firms that remain.

Which of the following is the best example of a perfectly competitive​ market?

farming

If demand for a​ seller's product is perfectly​ elastic, which of the following is​ true? i. The firm will sell no output if it sets the price its product above the market price. ii. There are many perfect substitutes for the​ seller's product. iii. The firm will sell no output if it sets the price its product below the market price.

i and ii

Which of the following can be a barrier to​ entry? i. ownership of a necessary input ii. requiring a government license iii. large diseconomies of scale

i and ii

A natural​ monopoly's average cost curve i. intersects the demand curve while the average cost curve slopes downward. ii. reaches its minimum before it intersects the demand curve. iii. intersects the demand curve below the intersection of the marginal cost curve and the demand curve.

i only.

For a singleminus−price ​monopoly,

if marginal cost exceeds marginal​ revenue, profits will increase if output decreases.

Computer memory chips are produced on​ wafers, each wafer having many separate chips that are separated and sold. The above table shows costs for a perfectly competitive producer of computer memory chips. If the market price of a wafer is​ $2,400 dollars, the firm is

incurring an economic loss of​ $2,000 an hour.

If a firm shuts​ down, it

incurs an economic loss equal to its total fixed cost.

If the market price is​ $50 per unit for a good produced in a perfectly competitive market and the​ firm's average total cost is​ $52, then the firm

incurs an economic loss of​ $2 per unit.

Because economic profits are eliminated in the long run in monopolistic​ competition, to earn an economic profit firms continuously

innovate and develop new products.

During the​ winter, theme parks in Orlando close earlier than in the summer. The reason the theme parks close early during the winter is because during that season the marginal revenue from staying open later is​ ________ the marginal cost.

less than

Excess capacity exists when a firm produces

less than the quantity that minimizes average total cost.

Which of the following firms is most likely to be a​ monopoly?

local distributor natural gas

If a monopoly wants to sell a greater quantity of​ output, it must

lower its price.

The​ firm's supply curve is its

marginal cost curve above the average variable cost curve.

Suppose the Busy Bee Cafe is the monopoly producer of hamburgers in​ Hugo, Oklahoma. The above figure represents the​ demand, marginal​ revenue, and marginal cost curves for this establishment. If the Busy Bee produces 40 hamburgers per​ hour, then

marginal revenue will be negative.

For a perfectly competitive​ firm, profit maximization occurs when output is such that

marginal revenue ​(MR​) ​= marginal cost ​(MC​).

Bill owns a lawnminus−care company in​ Windermere, Florida, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals​ $32 per lawn mowed.​ Bill's average total cost curve is ATC​, so his total cost of production equals

more than​ $0 and less than​ $1,200 per week.

For a firm in monopolistic​ competition, innovation and product development are

necessary in order to have a chance of earning at least a shortminus−run economic profit.

A Nash equilibrium in the duopoly game

occurs when each player takes the best possible action regardless of the strategy chosen by other firms.

Game theory is used to analyze the interactions among firms in​ ________.

oligopoly

A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the

price is at least equal to the minimum average variable cost.

The above figure illustrates a perfectly competitive firm. If the market price is​ $40 a​ unit, to maximize its profit​ (or minimize its​ loss) the firm should

produce 40 units.

A firm in monopolistic competition makes its decisions on quantity and price by

producing where MR ​= MC and setting the price for this quantity from the demand curve.

If a monopoly wants to sell a larger​ quantity, it must

set a lower price.

A perfectly competitive market arises when

the market demand is very large relative to the output of one seller.

The above figure illustrates a perfectly competitive firm. If the market price is​ $10 a​ unit, to maximize its profit​ (or minimize its​ loss) the firm should

shut down.

One reason a company advertises is to

signal consumers that its product is high quality.

In an​ oligopoly, output is

somewhere between the output in monopoly and that in perfect competition outcomes.

A natural monopoly arises when

the longminus−run average cost curve slopes downward as it crosses the demand curve.

Which of the following is the best example of a natural​ monopoly?

the cable television company in your hometown

A monopoly produces a product​ ________ and there​ ________ barriers to entry into the market.

with no close​ substitutes; are

A perfectly competitive firm is producing 50 units of output and selling at the market price of​ $23. The​ firm's average total cost is​ $20. What is the​ firm's total​ cost?

​$1,000

A perfectly competitive firm is producing 50 units of​ output, which it sells at the market price of​ $23 per unit. The​ firm's average total cost is​ $20. What is the​ firm's total​ revenue?

​$1,150

Computer memory chips are produced on​ wafers, each wafer having many separate chips that are separated and sold. The above table shows costs for a perfectly competitive producer of computer memory chips. This firm will produce as long as the market price of a wafer is above

​$1,300.

The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. In the Nash​ equilibrium, Firm A will set a price of​ ________ and Firm B will set a price of​ ________.

​$10; $10

The above table has the total revenue and total cost schedule for​ Omar, a perfectly competitive grower of rutabagas. When Omar maximizes his​ profit, Omar's profit equals

​$16.

Suppose the Busy Bee Cafe is the monopoly producer of hamburgers in​ Hugo, Oklahoma. The above figure represents the​ demand, marginal​ revenue, and marginal cost curves for this establishment. What price will the Busy Bee charge to maximize its​ profit?

​$3.00 for a hamburger

A singleminus−price monopoly can sell 10 units of its product at a price of​ $45 each but to sell 11​ units, the monopoly must cut the price to​ $44. What is the marginal revenue of the extra unit​ sold?

​$34

A singleminus−price monopoly has marginal revenue and marginal cost equal to​ $19 at 15 units of output where the price on the demand curve is​ $38. At this​ output, average total cost is​ $15. What is the total profit​ earned?

​$345

The table above gives the demand for a​ monopolist's output. What is the marginal revenue when output is increased from 2 to 3​ units?

​$4

​Gene's Car Wash is a natural monopoly. To wash 100 cars a​ week, if Gene is​ unregulated, he would charge a price of​ $10. Gene's average total cost for washing 100 cars is​ $8, his average variable cost is​ $6, and his marginal cost is​ $4. If Gene is regulated using a marginal cost pricing​ rule, the price he is allowed to charge to wash 100 cars is

​$4.

The above figure shows a restaurant engaged in monopolistic competition with other restaurants. The equilibrium price at this restaurant is​ ________ per meal.

​$50

Suppose Intel and AMD can each charge either​ $300 or​ $200 for a CPU​ (the computing unit of a​ computer). The above table illustrates the​ payoffs, in millions of​ dollars, from each of the four possible outcomes that could occur in their duopoly setting. If Intel charges​ $200 and AMD charges​ $300, then​ Intel's profit will be​ ________ million and​ AMD's profit will be​ ________ million.

​$500; $100

Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand and cost curves for his​ firm, which competes in a monopolistically competitive market. What price will Kevin charge per​ session?

​$60

A singleminus−price monopoly can sell 2 units for​ $8.50 per unit. In order to sell 3​ units, the price must be​ $8.00 per unit. The marginal revenue from selling the third unit is

​$7.00.

Suppose the grocery store market in Kansas City is perfectly competitive. Then one store buys all the others and becomes a singleminus−price monopoly. The figure above shows the relevant demand and cost curves. When the market is perfectly​ competitive, the price of a pound of steak is​ ________ and when it is a​ monopoly, the price of a pound of steak is​ ________.

​$8; $12

The figure above shows the​ demand, marginal​ revenue, and marginal cost curves for​ Paul's Parrot​ Pillows, a singleminus−price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his​ profit, he produces​ ________ pillows per hour.

​3,000

The figure above shows the​ demand, marginal​ revenue, and marginal cost curves for​ Paul's Parrot​ pillows, a monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his​ profit, Paul produces​ ________ pillows per hour and if the market was perfectly​ competitive, ________ pillows per hour would be produced.

​3,000; 4,000

The figure above shows a perfectly competitive firm. If the market price is​ $20 per​ unit, then the firm produces​ ________ units and has an economic profit that is​ ________.

​30; zero because the firm earns a normal profit

​Arnie's Airlines is a monopoly airline that is able to price discriminate. If​ Arnie's decides to price​ discriminate, then

​Arnie's profit increases.

The corn market is perfectly​ competitive, with thousands of corn farmers. In the​ 2000s, the price of corn soared so that new farmers entered the corn market.​ Initially, entry​ ________ the economic profit of the initial corn farmers and in the long run the initial corn farmers​ ________.

​decreased; earned zero economic profit


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