Econ Exam IV

To be called an oligopoly, an industry must have: relatively easy entry and exit. independence in decision making. a horizontal demand curve. a small number of interdependent firms

a small number of interdependent firms

The demand curve for a monopoly is: the entire MR curve. the MR curve above the AVC curve. the MR curve above the horizontal axis. above the MR curve

above the MR curve

The demand curve for a monopoly is: identical to the MR curve. also the industry demand curve. the MC curve above the AVC curve. the MR curve above the horizontal axis

also the industry demand curve

A perfectly competitive industry is said to be efficient because the: average total cost of production of the industry's output is minimized. market price of the good is equal to economic profit for all firms in the industry. marginal cost of production of the last unit of output is minimized. product is standardized across firms in the industry

average total cost of production of the industry's output is minimized

Two identical firms make up an industry in which the market demand curve is represented by Q = 5,000 - 4P, where Q is the quantity demanded and P is price per unit. The marginal cost of producing the good in this industry is constant and equal to $650. Fixed cost is zero. Reference: Ref 14-20 (Scenario: Two Identical Firms) If one firm in the scenario Two Identical Firms decides to cheat, the cheating firm will: be able to increase its profits initially. find that cheating leads to a decrease in its profits alone. find that cheating initially leads to an increase in both firms' profits. find that the other firm has an increase in its profits alone

be able to increase its profits initially

Diamond rings are relatively scarce because: according to geologists, diamonds are less common than any other gem-quality stone. the demand for diamonds is so high. diamond producers limit the quantity supplied to the market. of monopolistic competition

diamond producers limit the quantity supplied to the market

A strategy that is the same regardless of the action of the other player in a game is a _____ strategy. competitive dominant tit-for-tat trigger

dominant

The wedding dress industry is monopolistically competitive. As a result: it has freedom of entry but not exit. thousands of dress suppliers all sell identical products. dresses tend to be differentiated among the many sellers serving this market. prices tend to be lower than if the dress industry approximated perfect competition

dresses tend to be differentiated among the may sellers serving this market

Monopolistically competitive firms: engage in collusive activity to maximize profit. will set price where MC > MR. are very similar to perfect competitors in producing at the minimum ATC. earn a positive economic profit if price is greater than ATC

earn a positive economic profit if price is greater than ATC

The large barriers to entry are a reason a monopoly: produces at the minimum average total cost in the long run. earns an economic profit in the long run. produces with no fixed costs in the long run. maximizes its profits by producing where P = MC

earns an economic profit in the long run

The purpose of the trusts established in the United States in the late 1800s was to: promote international trade. limit the involvement of government in providing health care. engage in monopoly pricing. promote competition in the transportation industry

engage in monopoly pricing

The model of monopolistic competition characterizes the market for plumbing services in a city. Suppose that the market is in long-run equilibrium. For a typical plumbing firm, price: equals average total cost. exceeds average total cost. is less than average total cost. is greater than the average for all other firms in the market

equals average total cost

If firms are taking economic losses in the short run, firms will leave the industry, industry output will _____, and economic losses will _____ in the long run. rise; rise fall; rise rise; fall fall; fall

fall; fall

In which of the following situations does overt collusion take place? Competition among a large number of small firms generates a stable market price. Smaller firms in an industry have an unspoken agreement to charge the same price as the largest firm. Competition among a large number of small firms generates similar but slightly different prices. Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits

firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits

When initially a monopolistically competitive industry earns economic profit, the result of competition among sellers is usually that: the price of the product quickly reaches the perfectly competitive level. firms in the industry lose market share. firms in the industry gain market share. the price of the product increases to monopoly level

firms in the industry lose market share

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: less than the average fixed cost. greater than average total cost. greater than average variable cost but less than average total cost. less than marginal cost

greater than average total cost

If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by: increasing production. making no change in output or price because it is already maximizing profit. increasing the price. decreasing the price

increasing production

A monopolistically competitive firm has a downward-sloping demand curve for its product, primarily because: the price is greater than the marginal revenue. its product is differentiated. there are no barriers to entry or exit in the long run. there are many sellers in the industry.

its product is differentiated

The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants. The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which: average total cost is greater than $10. average total cost equals $10. marginal revenue equals $10. marginal cost equals marginal revenue

marginal cost equals marginal revenue

Industries that are made up of many competing producers, each selling a differentiated product, and whose firms earn zero economic profits in the long run are: monopolies. perfectly competitive. monopolistically competitive. oligopolies.

monopolistically competitive

Look at the figure Profit Maximization in Monopolistic Competition. When the demand curve for a firm in monopolistic competition shifts, the marginal revenue curve: will stay the same. shifts in the opposite direction. will shift, but the profit-maximizing quantity will not change. must also shift.

must also shift

In the short run, if P < AVC at the quantity where MR = MC, a perfectly competitive firm produces _____ and takes an economic _____. output; profit no output; loss no output; profit output; loss

no output; loss

_____ occurs if Coke hires Michael Jordan to make a commercial and Pepsi follows by hiring Peyton Manning for its commercial. Antitrust policy Nonprice competition Tacit collusion Price leadership

nonprice competition

A feature of monopolistic competition that makes it different from monopoly is the: number of firms in the industry. downward-sloping demand curve. fact that firms in monopolistically competitive industries follow the marginal decision rule, while monopolies do not. downward-sloping marginal revenue curve

number of firms in the industry

Suppose that some firms in a perfectly competitive industry are earning positive economic profits. In the long run, the: number of firms in the industry will not change. number of firms in the industry will increase. industry is in equilibrium. industry supply curve will shift to the left

number of firms in the industry will increase

If there are two gas stations in a very small town, then the gas station business there is probably best characterized as: oligopolistic. perfectly competitive. monopolistic. monopolistically competitive

oligopolistic

Look at the figure Short-Run Monopoly. The marginal cost of producing the profit-maximizing quantity is cost: O. N. P. Q.

p

The market for grade A large eggs in California is best considered to be an example of: monopoly. monopolistic competition. oligopoly. perfect competition

perfect competition

If a player has an incentive to cheat no matter what the other player does and if both players act in this manner, both players will be worse off. This is a: kinked demand curve model. prisoners' dilemma. price leadership model. tit-for-tat strategy

prisoners' dilemma

A monopolistically competitive firm has excess capacity in the long run. This means that it: could produce more by moving to a larger plant. produces less than the output at which average total costs are minimized. doesn't maximize profits. produces less than the output at which price and marginal cost are equal

produces less than the output at which average total costs are minimized

The firm in the figure Monopolistic Competition IV is producing at the output level that maximizes profits (minimizes losses). The shaded rectangle depicts the level of: loss. variable cost. profit. fixed cost.

profit

Defenders of advertising argue that it: encourages artificial product differentiation. seeks to persuade rather than inform buyers. facilitates the concentration of monopoly power. provides education and information about products.

provides education and information about products

The figure The Restaurant Market shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the market. In the long run: restaurants will neither enter nor exit the market. restaurants will leave the market. Not enough information is given to answer the question. restaurants will enter the market.

restaurants will enter the market

The perfectly competitive model assumes all of the following EXCEPT: easy entry to and exit from the market. that firms attempt to maximize their total revenue. a standardized product. a great number of buyers

that firms attempt to maximize their total revenue

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. the fewer close substitutes. the lower price elasticity of demand. The answer cannot be determined with the information given

the higher price elasticity of demand

Perfect competition is characterized by: fierce quality competition. the inability of any one firm to influence price. widely recognized brands. rivalry in advertising

the inability of any one firm to influence price

Which of the following is TRUE? The inefficiency of monopolistic competition is a result of advertising expenses. The inefficiency of monopolistic competition may be a small price to pay for the wide range of product choices it offers. Monopolistic competition is efficient because of product differentiation. Monopolistic competition and perfect competition are both inefficient.

the inefficiency of monopolistic competition may be a small price to pay for the wide range of product choices it offers

Price discrimination can occur if: all consumers have the same willingness to pay for the good. producers are price takers. there are many firms in the industry, all producing the same identical good. the market structure is a monopolistic competition

the market structure is a monopolistic competition

If the price is consistently below average total cost, then in the short run a perfectly competitive firm should: continue to produce to minimize losses. shut down. raise the price. There is not enough information given to answer this question

there is not enough information given to answer this question

When perfect competition prevails, which of the following characteristics of firms are we likely to observe? They all try to operate where price equals average variable cost. They all try to operate where price equals total cost. They are all price takers. None of them ever has diminishing marginal returns

they are all price takers

Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $40. If the cable company practices perfect price discrimination, consumer surplus will be: $100. $40. $180. $0.

$0

Look at the figure Profit Maximization for a Firm in Monopolistic Competition. Suppose that an innovation reduces a firm's costs from ATC to ATC′. Before the innovation reduced the cost, the firm's maximum economic profit was: $4,500. $0. $30. $750.

$0

Look at the figure The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the profit-maximizing output and price for a perfectly competitive industry, deadweight loss is: $1,600. $0. $200. $3,200.

$0

Look at the table Cherry Farm. If all farms are the same size, how much economic profit will each farm earn when the industry is in long-run equilibrium? $0 $100 -$200 $1,000

$0

Look at the table Demand for Solar Water Heaters. The marginal cost of producing solar water heaters is zero, and only two firms, Rheem and Calefi, produce them. If Rheem and Calefi get into a price war, the equilibrium price in the market will be: $0. $800. $1,000. $700

$0

A monopolist sells cable subscriptions in a small town and finds that it can sell 100 subscriptions when the price is $15 a week and an additional 75 subscriptions when the price is $10 a week. The MC for the provision of the cable is $5 a week. There are no fixed costs. Reference: Ref 13-23 (Scenario: A Small-Town Monopolist) Look at the scenario A Small-Town Monopolist. If the company is allowed to offer different prices for its good, what is the maximum amount of profit this company can earn? $750 $1,000 $1,520 $1,375

$1,375

Look at the figure Water Works, which describes a small town's water works, a natural monopoly. If the water works is unregulated and maximizes profit, how much profit will it earn? $800 $1,400 $1,000 $1,600

$1,400

The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. At the profit-maximizing output, profit per unit is: $10.00. $8.83. $11.75. $1.17.

$1.17

Look at the figure A Profit-Maximizing Monopoly Firm. This firm's cost per unit at its profit-maximizing quantity is: $18. $8. $20. $15.

$18

If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is $20 per unit, total revenue for 10 units is: $20. $210. $10. $200

$200

If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal revenue is: $10. more than $30. $300. $30

$30

Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is in a perfectly competitive industry, how much is consumer surplus? $500 $320 $0 $160

$320

Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, the market price of gadgets will be: $4. $6. $5. $7.

$4

Look at the figure Monopoly Model. When the firm is in equilibrium (that is, maximizing its economic profit), its total revenue is the area of rectangle: 0PDJ. IPDH. SPDB. 0SBJ.

0PDJ

Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal cost and fixed cost of producing crude oil equal zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If both firms decide to cheat and produce 10 more barrels each, industry output will be _____ barrels. 100 160 120 110

100

Look at the figure The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. The profit-maximizing output for a monopolist is: 8. 20. 16. 0.

8

If the several companies in the tobacco industry produce similar products but have very different marginal costs: they are less likely to engage in tacit collusion than firms with similar costs. they are more likely to engage in tacit collusion than firms with similar costs. output of tobacco products is more likely to be near the monopoly level than in an industry whose firms have similar costs. prices for tobacco products are more likely to be near the monopoly level than in an industry whose firms have similar costs

they are less likely to engage in tacit collusion than firms with similar costs

Look at the figure Monopoly Profits in Duopoly. Each firm faces an identical demand curve, D1, and the market demand curve is D2. The figure illustrates how firms can reap monopoly profits even in an industry with: monopolistic competition. free entry and exit. two firms. a four-firm concentration ratio of 50

two firms

Look at the figure Collusion. The price charged by the industry with collusion is shown by: Z. X. Y. W.

w

You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power? The average total cost curve for firms in the industry is horizontal. You own exclusive rights to harvest lemons from all domestic citrus orchards. A booming economy increases the demand for lemonade and attracts entry into the market. The government abolishes the system of patents and copyrights

you own exclusive rights to harvest lemons from all domestic citrus orchards

Look at the figure The Profit-Maximizing Firm. O is the _____ curve. AVC MC ATC MR

AVC

In panel (A) of the figure Profits in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point: C. G. F. H.

G

Look at the figure A Perfectly Competitive Firm in the Short Run. The minimum price that the firm must receive to produce in the short run is: E. N. F. P.

P

Tacit collusion in an industry is limited by: a large number of firms and the bargaining power of buyers. a large number of firms. the bargaining power of buyers. simple products and pricing

a large number of firms and the bargaining power of buyers

Both monopolists and monopolistic competitors: make positive economic profits in the long run. charge a price that is greater than the marginal cost of production. produce a product for which there are no substitutes. have high barriers to entry

charge a price that is greater than the marginal cost of production

In the classic prisoners' dilemma with two accomplices in crime, the dominant strategy for each individual is to: confess. This game does not have a dominant strategy. not confess. confess only if the other confesses

confess

Which of the following is MOST likely to cause firms to exit a perfectly competitive industry? Consumer tastes and preferences for this product get stronger. The price of a key variable input falls. A technological advance allows all firms to produce more efficiently. Consumer income falls

consumer income falls