Economics & Society Exam 2

Externalities

A side effect of an action that affects a third party other than the buyer or seller.

Natural monopoly happens when

average total cost curve is decreasing

A merger between firms in which one firm purchases an input from the other is called a

vertical merger.

Fixed cost equals

Average total cost minus average variable cost

Suppose a​ monopolist's costs and revenues are as follows ATC​ = $50; MC​ = $45; MR​ = $35; P​ = $55. The firm should

Decrease output and increase price

What are some characteristics of a perfectly competitive market?

Each firm is a price taker, the products sold by the firms in the market are homogeneous, there are many buyers and sellers in the market

What are some barriers to entry?

Economies of scale, control of resources, patents and copyrights

Once a cartel agreement has been​ made, it is rare for the agreement to break down.

False

Compared to perfect​ competition, a monopoly will produce​ ________ output, and charge a​ ________ price.

Lower, Higher

What​ price-output combination applies under perfect​ competition?

MC=D

A monopoly will maximize profits at the level of output at which

MR=MC

Which type of firm has the highest​ Herfindahl-Hirschman index?

Monopoly

Which type of efficiency is achieved by a monopolistically competitive firm in the long run?

Neither allocative nor productive efficiency

For what type of market structure is the demand curve the same as marginal revenue

Perfect competition

Total revenue is equal to

Price x Quantity

Market power

The ability of a firm to charge a price greater than marginal cost.

Price discrimination

The business practice of selling the same good at different prices to different customers

The demand curve of the perfectly competitive​ industry?

The market demand curve of the perfectly competitive industry is​ downward-sloping while the demand curve facing an individual firm is horizontal.

If all firms in an industry form a​ cartel, they act as a single producer and collude to charge the​ profit-maximizing price that would be charged by a monopoly.

True

An association of producers in an industry that agree to set common prices and output quotas to prevent competition is

a cartel.

An example of a market failure is

a firm is dumping toxic waste that is making people sick

A monopolist is defined as

a single supplier of a good or service for which there is no close substitute.

network externalities

a situation in which the usefulness of a product increases with the number of consumers who use it

dominant strategy

a strategy that is the best for a firm, no matter what strategies other firms use

One way that the government encourages the production of a good with positive externalities is to offer

a subsidy.

A good that people must actually consume before they can determine qualities is called

an experience good.

Government policy that attempts to prevent collusion among the sellers of a product and attempts to prevent restraint of trade is known as

antitrust policy.

According to economic​ analysis, the optimal level of pollution is

at the point at which the marginal benefits from pollution control are equal to the marginal cost.

In order for a firm to receive monopoly​ profits, there must be

barriers to market entry.

In order to price​ discriminate, a firm must

be able to prevent resale of its product.

positive externalities

benefits created by a public good that are shared by the primary consumer of the good and by society more generally

Long-run equilibrium in perfect competition results in

both productive and allocative efficiency

negative externalities

by-products of production or consumption that impose costs on third parties

The principle feature of private goods is that

consumption by one person reduces the quantity available to others.

After participating members of a cartel form an agreement on common prices and output​ quotas, then an individual firm can increase its own profits by

decreasing prices.

For a monopolistically competitive​ market, the number of firms in the market implies that

each firm acts independently of other firms

Market failures occur when

externalities exist.

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

If the average total cost curve is above the demand curve, then this firm is

having economic losses.

oligopolies have ________ barriers to entry

high

A merger between firms that are in the same industry is called a

horizontal merger.

Persuasive advertising is used to

induce a consumer to try a product and discover a previously unknown taste for it.

In a perfectly competitive​ industry, the industry demand curve

is downward sloping.

The monopolist produces an output that is __________ the perfectly competitive industry would produce.

less than

Products can be differentiated by

location and brand name.

Under perfect​ competition, a firm that sets its price slightly above the market price would

lose all of its customers.

A monopolistically competitive firm is characterized by the existence of many firms in the market, differentiated products and:

low barriers to entry.

In a monopolistically competitive market there are

many firms producing similar but not identical products

Output is lower than the efficient level when

marginal benefit is greater than marginal cost.

A firm will shut down when

marginal revenue equals average variable cost.

A monopoly will produce where

mr=mc, but take it up to the demand curve

The total revenue of a perfectly competitive firm is calculated by

multiplying price by quantity.

In an oligopolistic​ market, each firm

must consider the reaction of rival firms when making a pricing or output decision.

When the social costs exceed the private​ costs, economists state that there is

negative externality.

If government regulations significantly increase the cost of operating within a particular​ market, one result is that

new firms are discouraged from entering the market.

Cartel agreements are more likely to break down when

new firms enter the market.

In perfect competition, the marginal revenue is the same as

price.

Social costs are

private costs plus external costs.

Costs that are borne solely by the individuals who incur them are called

private costs.

The idea behind antitrust legislation is to

promote competition in the market

The brand name of a firm

relates to consumers' perception of product differentiation and to the market value of a firm.

By promoting its brand name​ heavily, the monopolistically competitive firm

signals its​ long-term intention to stay in the industry.

The​ free-rider problem is encountered when

someone benefits from the consumption of a public good without paying his or her full share.

Information goods can achieve significant economies of scale because __________.

the costs are almost all fixed costs.

The conclusion that a monopoly results in lower output and higher prices than perfect competition relies on the assumption that

the costs of production are the same whether the industry is perfectly competitive or a monopoly

A​ monopolist's demand curve is

the industry demand curve.

For a firm in a perfectly competitive​ industry, the demand curve for its own product is

the same as its marginal revenue curve.

Mass marketing involves

the use of all types of media, such as television and radio, to reach as many consumers as possible.

Firms will leave a market if

they are suffering losses.

Firms will enter a market only if

they expect to make an economic profit.

The main objective of advertising for a monopolistically competitive firm is

to differentiate the product and boost demand

When the price system fails to generate an efficient allocation of​ resources,

too few or too many goods will be produced.

In a market for emission​ permits, firms that emit below their allowed limits

will sell their excess allowances through a trading system.

In the long run, the monopolist can earn

zero or positive economic profit