econ quiz 4

According to our text, which of the following is accurate about a monopoly industry?

A government-granted monopoly (for example, a utility) is less-efficient and usually charges higher prices than a self-earned (free market) monopoly (for example, Microsoft).

When gasoline prices rise, oil companies are often accused of collusion in order to artificially raise the price and reap exorbitant (extremely high) profits. Which of the following is a reason why this is unlikely to persist in the long run?

A high price will invite new entrants (competitors) into the market who will undercut the price in order to establish a place in the market. It is usually very difficult for all the producers in the industry to come to an agreement about the price and production quotas. A high price will leave room for competitors in the industry to undercut the price and capture a larger share of the market.

Some industry types are more efficient than others. In which of the following industries is the firm NOT producing at the lowest average total cost in the long run (not at the lowest point on its ATC curve)?

Firms in all of the listed industry types produce at higher than the minimum ATC.

Which of the following is a characteristic of an oligopoly industry?

Firms in this industry are interdependent. Some industries are subject to price controls, but this is not a characteristic of firms in this industry.

What is the explanation for the kink in the kinked demand curve of an oligopolist?

In an oligopoly industry, rival firms usually lower their price if a competitor lowers its price. Rival firms usually choose to not change their price if a competitor raises its price.

Which of the following is a characteristic of a monopolistically competitive industry? Advertising on a national scale. Significant barriers to entry. Significant interdependence between the main large rival firms.

None of the listed answers is correct.

Which of the following industries is a good example of an oligopoly industry?

The auto manufacturing industry, in which several large firms are responsible for a majority of the sales in the market.

According to oligopoly game theory, if firm A sets a low price and firm B sets a high price, then:

The profits of firm A will be relatively high and the profits of firm B will be relatively low.

There are significant barriers to enter a(n):

oligopoly industry. Firms in a monopolistically competitive industry are typically small, so the barriers to entry are low. This means that in the long run, a typical firm in monopolistic competition earns zero economic profits, or a normal accounting profit.

The demand curve of a typical firm in monopolistic competition is:

downward-sloping and less-elastic than a perfectly competitive firm's demand curve.

Let's say that a monopolist produces at an output where its price is greater than its average variable cost, but its price is less than its average total cost. In this case, the monopolist:

operates at a loss but should not shut down.

A firm in monopolistic competition maximizes profits by identifying that price and output at which:

marginal cost equals marginal revenue, or where marginal cost comes closest to marginal revenue without being greater than marginal revenue. All this is contingent upon the conditions that the price is greater than the average variable cost and marginal cost must be rising.

A monopolist maximizes profits by choosing that output and price at which:

marginal cost is equal to or comes as close as possible to (without exceeding) the marginal revenue. This is given that the price is greater than the average variable cost, and that the marginal cost is rising at the profit-maximizing output.

According to our text (Bouman), regarding government-granted monopolies:

our government should NOT grant monopoly status to firms such as BG&E, the U.S. Postal Service, and cable companies, because it prohibits competition and innovation in the market. If due to economies of scale, there is room for only one competitor, then the market itself will determine this. No government intervention is necessary.

The main reason that firms in oligopoly industries can earn above-normal economic profits is that:

there are barriers to entering an oligopoly industry.