Micro Exam 4
A monopoly market
generally fails to maximize total economic well being
Cartels in the United States are
illegal
The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as
price discrimination.
Refer to Table 14-9. If the firm's marginal cost is $11, it should
reduce production to increase profit.
An equilibrium occurs in a game when
all players follow a strategy that they have no incentive to change
Which of the following is an example of a monopolistically competitive industry?
movies
Because the goods offered for sale in a competitive market are largely the same,
sellers will have little reason to charge less than the going market price.
The short-run market supply curve in a perfectly competitive industry
shows the total quantity supplied by all firms at each possible price.
Refer to Figure 15-18. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to
$0
Refer to Figure 15-18. If the monopoly firm perfectly price discriminates, then the deadweight loss amounts to
$0
Refer to Table 15-4. If the monopolist produces 10 units, what is its average revenue?
$10
Refer to Table 14-13. What is the marginal cost of the 8th unit?
$120
Refer to Table 14-16. For this firm, marginal revenue at an output of 10 units is
$15
Which of the following statements is correct?
Game theory is not necessary for understanding competitive or monopoly markets.
Refer to Table 17-19. What is grocery store 1's dominant strategy?
Grocery store 1 should always set a low price.
Refer to Table 17-20. What is Nadia's dominant strategy?
Nadia should always choose Don't Clean.
A corporation has been steadily losing money on one of its product lines, plastic flamingo lawn ornaments. The firm produces plastic flamingos in a factory that cost $20 million to build 10 years ago. The firm is now considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not to sell is correct?
The $20 million spent on the factory is a sunk cost; that cost should not affect the decision.
Refer to Table 17-37. Based upon the information from the table, which firm has a dominant strategy?
both firms
Antitrust laws allow the government to
break up companies
Refer to Figure 15-4. If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to
decrease
The prisoners' dilemma provides insights into the
difficulty of maintaining cooperation
If a firm in a competitive market doubles its number of units sold, total revenue for the firm will
double
Price discrimination
is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.
Which of the following is not a reason for the existence of a monopoly?
marginal-cost pricing
Refer to Figure 16-5. Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?
panel c
In reality, perfect price discrimination is
rarely possible
When entry and exit behavior of firms in an industry does not affect a firm's cost structure,
the long-run market supply curve must be horizontal.
In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is
the market supply curve
The assumption of a fixed number of firms is appropriate for analysis of
the short run but not the long run.
Most markets are not monopolies in the real world because
there are reasonable substitutes for most goods.
Which of the following is correct? When oligopolies collude
they make higher profits but consumers of the product are worse off.
Refer to Table 15-4. In order to maximize profits, the monopolist should produce
where marginal revenue equals marginal cost.
When the marginal revenue curve is drawn for a monopolist, the curve
is below the monopolist's demand curve, beyond the initial unit produced.
Refer to Figure 15-6. What area measures the monopolist's profit?
(K-B)*W
Refer to Table 17-14. If both players choose their best strategies, player A will earn a payoff of
4
Which of the following statements best expresses a firm's profit-maximizing decision rule?
If marginal revenue is greater than marginal cost, the firm should increase its output. If marginal revenue is less than marginal cost, the firm should decrease its output. If marginal revenue equals marginal cost, the firm should continue producing its current level of output
Refer to Figure 15-5. Profit on a typical unit sold for a profit-maximizing monopoly would equal
P2-P5.
Refer to Figure 15-3. Which of the following statements is correct?
Panel B represents the typical demand curve for a perfectly competitive firm, and Panel A represents the typical demand curve for a monopoly.
When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent
a transfer of benefits from the consumer to the producer.
Refer to Figure 17-2. If this game is played only once, then the most likely outcome is that
both firms produce a good quality product.
The entry of new firms into a monopolistically competitive market is accompanied by
both positive and negative externalities.
The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will
cause the market supply to decline and the price of textiles to rise.
Monopolies use their market power to
charge a price that is higher than marginal cost
In a natural monopoly,
if the government requires marginal cost pricing, it will likely have to subsidize the firm.
A competitive firm is currently producing a quantity of output at which marginal revenue exceeds marginal cost. In order to increase its profit, the firm should
increase its quantity of output.
Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it
should shut down immediately
Which of the following is an example of price discrimination?
Hotel rates for AAA members are lower than for nonmembers.
Which of the following statements best expresses a firm's profit-maximizing decision rule?
If marginal revenue is greater than marginal cost, the firm should increase its output.
Which of the following market structures is considered a differentiated products market?
Monopolistic competition
According to the signaling theory of advertising, consumers
are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement.
A distinguishing feature of an oligopolistic industry is the tension between
cooperation and self interest.
As new firms enter a monopolistically competitive market, profits of existing firms
decline, and product diversity in the market increases.
When a firm's demand curve is tangent to its average total cost curve, the
firm's economic profit is zero.
Because monopolistically competitive firms produce differentiated products, each firm
has some control over product price.
A typical firm in the US economy would be classified as
imperfectly competitive.
Refer to Table 17-14. Which outcome is the Nash equilibrium in this game?
not up right
A monopolistically competitive firm is currently charging a price of $20 and producing 3,000 units/month. It faces monthly fixed costs of $1,000 and has an average variable cost of $22/unit. We would expect:
not The firm to raise its price to cover its variable costs
Game theory is important for understanding which of the following market types?
oligoplistic but not perfectly competitive markets
Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry?
panel c
The relationship between advertising and product differentiation is
positive; the more differentiated the product, the more a firm is likely to spend on advertising.
Antitrust laws in general are used to
prevent oligopolists from acting in ways that make markets less competitive.
In a long-run equilibrium, the marginal firm has
price equal to average total cost total revenue equal to total cost economic profit equal to zero
A monopolistically competitive market could be considered inefficient because
price exceeds marginal cost.
When economists refer to a production cost that has already been committed and cannot be recovered, they use the term
sunk cost
Which of the following industries is most likely to exhibit the characteristic of free entry?
tennis shoes
Deadweight losses are associated with monopolistic competition:
In both the short and long run
Refer to Figure 16-11. How much consumer surplus will be derived from the purchase of this product at the monopolistically competitive price?
$250
Refer to Table 14-10. The marginal cost of producing the 4th unit is
$8
Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal cost is equal to
$8
Refer to Table 14-6. What is the total revenue from selling 7 units?
$840
The marginal revenue curve for a monopoly firm starts at the same point on the vertical axis as the (i) average revenue curve. (ii) marginal cost curve. (iii) demand curve
(i) and (iii) only
When determining whether to shut down in the short run, a competitive firm should ignore (i) fixed costs. (ii) variable costs. (iii) sunk costs
(i) and (iii) only
Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $3. (iii) Total revenue equals $900
(i), (ii), and (iii)
Game theory is necessary to understand which kinds of markets? (i) perfectly competitive (ii) monopolistically competitive (iii) oligopoly (iv) duopoly (v) monopoly
(iii) and (iv) only
Refer to Table 15-20. If a monopolist faces a constant marginal cost of $2, how much output should the firm produce in order to maximize profit?
5 units
Which of the following is not correct?
A monopolist can charge any price and sell any quantity that it chooses.
Predatory pricing occurs when
A monopolist decreases its prices to maintain its monopoly. Economists are skeptical that this practice is profitable.
Which of the following is a commonly-cited benefit of advertising?
Advertising can be a signal of the quality of a product.
In game theory, a Nash equilibrium is
All of the above are correct an outcome in which each player is doing his best given the strategies chosen by the other players. an outcome in which no player wishes to change her chosen strategy given the strategies chosen by the other players. the outcome that occurs when all players have a dominant strategy
Refer to Figure 14-14. Suppose a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P1 to P2. Which of the following could explain this observation?
An increase in market demand from D0 to D1.
Which of the following statements is not correct?
Antitrust laws automatically prevent mergers between companies that produce similar products.
Which of the following statements regarding a competitive market is not correct?
Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume.
Which of the following statements is correct?
Brand names may help consumers if they provide information about the quality of a product when acquiring such information is difficult.
Refer to Figure 15-3. Which panel could represent the demand curve facing a soybean farmer?
Panel B
Refer to Figure 16-14. Which of the following best describes the profit-maximizing outcome for the firm depicted here?
This firm is in long run equilibrium and will continue to earn zero profit.
A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called
a Nash equilibrium
Which of the following examples illustrates an oligopoly market?
a city with two firms who are licensed to sell school uniforms for the local schools
Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is
all of the above
If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will
be able to increase its markup over marginal cost.
Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?
continue to operate at 14 units
Refer to Table 16-3. Based on the concentration ratio, which industry is the most competitive?
industry c
A restaurant that has market power can
influence the market price for the meals it sells
An oligopoly
is a type of imperfectly competitive market.
Refer to Figure 14-6. Firms will be earn losses in the short run but will remain in business if the market price
is greater than P1 but less than P3.
A monopolistically competitive market
is imperfectly competitive, but not all imperfectly competitive markets are monopolistically competitive
A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if
it has some degree of monopoly-pricing power.
A monopoly is an inefficient way to produce a product because
it produces a smaller level of output than would be produced in a competitive market.
In the long run, a monopolistically competitive firm produces a quantity that is
less than the efficient scale.
Profit-maximizing firms in a competitive market produce an output level where
marginal cost equals marginal revenue.
Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's
marginal cost exceeds her marginal revenue.
In a perfectly competitive market, the process of entry and exit will end when firms face
marginal revenue equal to long-run average total cost.
A monopolistically competitive firm chooses the quantity to produce where
marginal revenue equals marginal cost.
To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of output at which
marginal revenue equals marginal cost.
A profit-maximizing monopolist will produce the level of output at which
marginal revenue is equal to marginal cost.
Refer to Table 17-16. Which of the following outcomes represents a Nash equilibrium in the game?
middle center
The two types of imperfectly competitive markets are
monopolistic competition and oligopoly.
There are two types of markets in which firms face some competition yet are still able to have some control over the prices of their products. Those two types of market are
monopolistic competition and oligopoly.
Under which of the following market structures would consumers likely pay the highest price for a product?
monopoly
Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm charge a price that exceeds marginal cost?
monopoly and monopolistic competition only
Oligopolies would like to act like a
monopoly, but self-interest often drives them closer to the perfectly competitive outcome.
The lower the concentration ratio, the
more competitive the industry
Refer to Figure 15-1. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure?
natural monopoly
Refer to Figure 16-9. Given this firm's cost curves, if the firm were perfectly competitive rather than monopolistically competitive, then in a long-run equilibrium it would produce
not between 100 and 133
If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm
sole ownership of the right to sell the drug for a limited number of years.
A firm can signal the high quality of its product by
spending a large amount of money on advertising.
Refer to Figure 16-4. Assume the firm in the figure is currently producing 20 units of output and charging $925. The firm
will increase its profits if it lowers its price and expands its production level.
The legislation passed by Congress in 1914 to strengthen the government's powers and authorize private lawsuits was the
Clayton Act
Refer to Table 16-5. What price should this firm charge to maximize profit?
$18
Refer to Table 14-17. Based upon this information, if the firm is producing the profit maximizing output, how much profit does the firm make?
$4
Which of the following statements is correct?
If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.
The equilibrium price in a market characterized by oligopoly is
lower than in monopoly markets and higher than in perfectly competitive markets.
Refer to Figure 14-1. If the market price is $5.00, the firm will earn
negative economic profits in the short run but remain in business.
For a long while, electricity producers were thought to be a classic example of a natural monopoly. People held this view because
the average cost of producing units of electricity by one producer in a specific region was lower than if the same quantity were produced by two or more producers in the same region.
If a monopolistically competitive firm can increase its level of production and lower its average total cost of production at the same time then
the firm has excess capacity.
