ECON 102 Midterm #3

If a perfectly competitive firm sells 300 units of output at a market price of $1 per unit, its marginal revenue is:

$1

Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:

$19

Mikail's perfectly competitive camera memory card-producing factory is making positive economic profits. If the price of memory cards is $9, Mikail's output is 3,000 cards a month, and his monthly average total cost is $7, what are his monthly profits?

$6,000

A major application of the Sherman Antitrust Act was in ________ against ________.

1911; Standard Oil

In the short run, a perfectly competitive firm produces output and incurs an economic loss if:

AVC<P<ATC

Which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect?

In the long run, economic profits are driven to zero in both a monopoly and a perfectly competitive market.

Which of the following statements about the differences between monopoly and perfect competition is incorrect?

Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

A ________ occurs if all players in a game play their best strategies given what their competitors do.

Nash equilibrium

Kellogg, General Mills, Post and Quaker Oats dominate the ready-to-eat cereal market. This industry has consistently showed profits in the long run, and is difficult to enter due to brand proliferation. The ready-to-eat cereal industry is an example of what type of market structure?

Oligopoly

In the short run, a perfectly competitive firm produces output and earns zero economic profit if:

P=ATC

Refer to Figure d. What is the Nash equilibrium in table above?

Travis south, Darren west

Which of the following is true for the game in Scenario 13.3?

Zport's dominant strategy is the low profile tires

Which of the following is not a barrier to entry?

a ban on certain kinds of advertising

After the first unit sold, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold because of:

a downward sloping demand curve

Which of the following factors increases the likelihood that oligopolists collude?

a firm and its rivals are currently operating at maximum productive capacity

Which of the following is true?

a monopoly firm is a price-maker

Which of the following is most likely to be observed when firms engage mainly in non-price competition?

advertising and product differentiation

A perfectly competitive industry is said to be efficient because the:

average total cost of production of industry's output in minimized

Control of a scarce resource or input, economies of scale, technological superiority, and government-created barriers are forms of:

barriers to entry

Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. Which of the following is the outcome of the dominant strategy without cooperation?

both confess

Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and B) and two pricing strategies (high and low). Which of the following is the outcome of the dominant strategy without cooperation?

both firm A and firm B choose the low price

Consider the following game in which two firms decide how much of a homogeneous good to produce. The annual profit payoffs for each firm are stated in the cell of the game matrix, and Firm A's payoffs appear first in the payoff pairs:

both firms produce low levels of output

Refer to Figure 12.7 The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy.In the Nash equilibrium:

both firms would charge a low price

Refer to Figure 12.7. The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy. If both firms follow their individual dominant strategy:

both will earn $150 daily profit

If a monopolist is producing a quantity that generates MC < MR, then profit:

can be increased by increasing production

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. The large barriers to entry in the Smalltown gas industry explain why Gary and Frank:

can earn an economic profit in the long run

An extreme case of oligopoly in which firms collude to raise joint profits is known as a:

cartel

Compared to a perfectly competitive industry, a monopolist:

charges a higher price

Price discrimination is the practice of:

charging different prices to buyers of the same good

Tony runs Read Economic Reports. If Tony finds that the cost of completing an additional report is $100 and someone offers him $125 to complete this additional report, Tony should:

complete the additional report

Refer to Table 12.2. Jeri and Tom are arrested for having committed a crime. They are being interrogated individually and need to decide if they should confess or not confess. The police have enough information to put them in jail for 5 years. They also know the pair have committed a more egregious crime but without the help of one of the suspects they will not be able to convict them on this charge. The first number in each cell refers to the number of years of prison time Jeri will receive if she confesses or does not confess and the second number in each cell refers to the number of years of prison time Tom will receive if he confesses or does not confess. The dominant strategy for Jeri is to ________ and the dominant strategy for Tom is to ________.

confess; confess

If the long-run market supply curve for a perfectly competitive market is horizontal, then this industry is one that exhibits:

constant costs

Which of the following is a barrier to entry?

control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

A tit-for-tat strategy is one in which oligopolies

cooperate as long as other members cooperate, but if anyone cheats, they cut the price until the cheater reverts to cooperation

If a perfectly competitive firm can sell a bushel of soybeans for $40 and it has an average variable cost of $50 per bushel and the marginal cost is $52 per bushel, the firm should:

cut output to zero

The De Beers company is described as a monopolist in the production of:

diamonds

Maximization of joint profits is most likely when firms are:

duopolists who collude

An industry with two firms producing is generally called:

duopoly

In perfect competition:

each individual firm will have a small market share

In the long run, each firm in a perfectly competitive industry will:

earn only enough to cover the opportunity costs of the resources used in production

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the typical firm is likely to begin:

earning an economic profit

Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor. You have high fixed costs due to the quantity of capital used to build the jets. There's decreasing average cost for all levels of demand. In this case, your monopoly would result from which of the following?

economies of scale

When a firm finds that its ATC of production decreases as it increases production, this firm is said to be experiencing:

economies of scale

De Beers became a monopoly by:

establishing control over diamond mines

In 1999, a judge declared that Microsoft was a monopolist. Assuming that it is maximizing its profits at its current level of output, we may conclude that if Microsoft were to increase its price, its total revenue would:

fall

If firms are experiencing economic losses in the short run, firms will leave the industry, industry output will ________, and economic losses will ________ in the long run.

fall; fall

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the information given, we can conclude that in the long run we will observe:

firms leaving the industry

In an oligopoly:

firms recognize their interdependence

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:

greater than average total cost

One government policy for dealing with a natural monopoly is to:

impose a price ceiling to reduce economic profit

Marginal revenue is a firm's:

increase in total revenue when it sells an additional unit of output

Suppose that some firms in a perfectly competitive industry earn negative economic profits. In the long run, the:

industry supply curve will shift to the left

For a monopolist, the market demand curve:

is also the demand for the monopolist's product

Suppose Sarah's pottery studio is charging the market price, which is just higher than her minimum average total cost. This means that Sarah:

is earning a small economic profit

Suppose Sarah's pottery studio is charging the market price, which is just higher than her minimum average total cost. This means that Sarah:

is earning a small economic profit.

In the game in Scenario 13.3, the equilibrium outcome:

is for Moto to offer a CD changer and Zport to offer low profile tires

In the game in Scenario 13.3, the equilibrium outcome:

is for Moto to offer a CD changer and Zport to offer low-profile tires

Marginal revenue for a monopolist is:

less than price

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary believes he faces a kinked demand curve. This means Gary thinks if he lowers his price, then Frank will ________, and if he raises his price, Frank will ________.

lower his price; not raise his price

A monopolistically competitive industry is made up of:

many firms producing a differentiated product

A perfectly competitive firm's short-run supply curve is its:

marginal cost curve above the average variable cost curve

The addition to the total revenue from selling one more unit of the good is:

marginal revenue

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

market power

Han and Micah have just started their own business-a food truck that sits on city streets and sells specialty Vietnamese food. The start-up costs were low, and there are lots of other Vietnamese food trucks in the city, but Han's cooking is very special. People come from all over the city to buy their food, so they can charge a slightly higher price than their competitors. What type of market structure do they face?

monopolistic competition

An industry with a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is:

monopoly

Firms in which of the following market structures have the most market power?

monopoly

In contrast to perfect competition, a:

monopoly produces less at a higher price

Airlines are prone to price wars because:

most fliers choose airlines on the basis of schedule and price

The land you own has the only known source of aloe needed to make anti-itch lotion. In this case, your monopoly results from which of the following?

ownership of scarce inputs

In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in:

positive economic profits for firms, which will attract new firms, which in turn will result in a reduction in the price.

To practice effective price discrimination, a monopolist must be able to:

prevent the resale of goods among groups of buyers

Which of the following is true?

price and marginal revenue are the same in perfect competition

The practice of selling the same product at different prices in different markets, without corresponding differences in costs, is:

price discrimination

Under which condition would the firm be incurring a loss?

price is below average total cost

A perfectly competitive firm is a:

price-taker

In the short run, if P = ATC, a perfectly competitive firm:

produces output and earns zero economic profit

A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down. Compared to the condition before the increase in marginal costs, the monopolist will ________ its price and ________ its level of production.

raise; decrease

If a competitive firm can sell a bushel of soybeans for $25 and it has an average variable cost of $24 per bushel and the marginal cost is $26 per bushel, the firm should:

reduce output

Ashley, who makes knitted caps, determines that her marginal cost of producing one more knitted cap is equal to $10. A consumer offers her $12 if she sells one more knitted cap to her. Ashley will:

sell the additional knitted cap, since the marginal revenue is greater than the marginal cost for the unit

If the price is less than the average variable cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

shut down production

In the short run, a perfectly competitive firm produces output and breaks even if:

the firm produces the quantity at which P = ATC

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with:

the higher price elasticity of demand

In perfect competition:

the industry output is a standardized product

The short-run supply curve for a perfectly competitive firm is:

the marginal cost curve about the shut-down price

The shut-down price is:

the minimum of the AVC curve

The break-even price for a perfectly competitive firm is equal to:

the minimum value of average total cost

Sadia wants to practice price discrimination in her bakery. Which of the following techniques should Sadia not use?

the same price for all consumers for freshly baked goods

During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. In the short run, Alex will shut down his lawn-mowing service rather than continue mowing grass if:

the total revenues can't cover the total variable costs.

An oligopoly is characterized as an industry in which:

there are few firms, each producing a differentiated or similar product

Refer to Table 14.2. Firm Aʹs dominant strategy is

to advertise

A firm's total output times the price at which it sells that output is:

total revenue

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.

yes the firms can simplicity collude and agree to charge a higher price

In a long-run equilibrium, economic profits in a perfectly competitive industry are:

zero