Micro Final

2. A firm that is the sole seller of a product without close substitutes is a. perfectly competitive. b. monopolistically competitive. c. an oligopolist d. a monopolist

D

1. Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly a. is often not in the best interest of society. b. maximizes total economic well-being. c. is efficient. d. benefits consumers more so than the producer.

A

17. Excess capacity is a. an example of the inefficiencies of monopolistically competitive markets. b. a short-run problem but not a long-run problem. c. a characteristic of rising average total cost curves. d. Both a and b are correct

A

19. The relationship between advertising and product differentiation is a. positive; the more differentiated the product, the more a firm is likely to spend on advertising. b. negative; the more differentiated the product, the less a firm is likely to spend on advertising. c. zero; there is no relationship between product differentiation and advertising. d. irrelevant; firms with differentiated products do not need to advertise

A

29. Which of the following is necessarily a problem with antitrust laws? a. They may target a business whose practices appear to be anti-competitive but in fact have legitimate purposes. b. They may encourage firms to collude and reduce social welfare compared to the unregulated market. c. They reduce the effectiveness of the market to self-regulate. d. They are enforced by agencies whose self-interest contradicts the interests of society as a whole

A

4. The laws governing patents and copyrights a. promote monopolies. b. are intended to serve private interests, not the public's interest. c. have costs but not benefits. d. eliminate the need for firms to engage in research and development.

A

18. Monopolistic competition is an inefficient market structure because a. marginal revenue equals marginal cost. b. it has a deadweight loss, just as monopoly does. c. long-run profits are zero due to free entry. d. All of the above are correct.

B

25. When firms have agreements among themselves on the quantity to produce and the price at which to sell output, we refer to their form of organization as a a. Nash arrangement. b. cartel. c. monopolistically competitive oligopoly. d. perfectly competitive oligopoly.

B

5. A natural monopoly occurs when a. the product is sold in its natural state, such as water or diamonds. b. there are economies of scale over the relevant range of output. c. the firm is characterized by a rising marginal cost curve. d. production requires the use of free natural resources, such as water or air.

B

6. The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways? a. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost. b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost. c. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output. d. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist.

B

12. A monopolistically competitive market has characteristics that are similar to a. a monopoly only. b. a competitive firm only. c. both a monopoly and a competitive firm. d. neither a monopoly nor a competitive firm

C

13. Firms in industries that have competitors but do not face so much competition that they are price takers are operating in either a(n) a. oligopoly or perfectly competitive market. b. oligopoly or monopoly market. c. oligopoly or monopolistically competitive market. d. monopoly or monopolistically competitive market.

C

14. The breakfast cereal industry, with its concentration ratio of 80%, would best be described as a(n) a. perfectly competitive market. b. monopolistically competitive market. c. oligopoly. d. monopoly

C

16. Free entry and exit means that the number of firms in the market adjusts until a. producers continuously enter the market freely. b. the market grows to a profitable level. c. economic profits are driven to zero. d. products are free.

C

24. When an oligopoly market reaches a Nash equilibrium, a. the market price will be different for each firm. b. the firms will not have behaved as profit maximizers. c. a firm will have chosen its best strategy, given the strategies chosen by other firms in the market. d. a firm will not take into account the strategies of competing firms.

C

26. When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have a. a cartel. b. a group of oligopolists behaving as a monopoly. c. a Nash equilibrium. d. the perfectly competitive outcome.

C

27. Cartels are difficult to maintain because a. antitrust laws are difficult to enforce. b. cartel agreements are conducive to monopoly outcomes. c. there is always tension between cooperation and self-interest in a cartel. d. firms pay little attention to the decisions made by other firms.

C

8. If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm a. partial ownership of the right to sell the drug for a limited number of years. b. partial ownership of the right to sell the drug for an unlimited number of years. c. sole ownership of the right to sell the drug for a limited number of years. d. sole ownership of the right to sell the drug for an unlimited number of years.

C

9. After the patent runs out on a brand name drug, generic drugs enter the market. What happens next in the market? a. Price increases, and total surplus decreases. b. Price decreases, and total surplus decreases. c. Price decreases, and total surplus increases. d. Price increases, and total surplus increases.

C

10. The economic inefficiency of a monopolist can be measured by the a. number of consumers who are unable to purchase the product because of its high price. b. excess profit generated by monopoly firms. c. poor quality of service offered by monopoly firms. d. deadweight loss.

D

11. Round-trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy? a. Airlines are practicing imperfect price discrimination to raise their profits. b. Airlines charge a different rate based on the different nature of peoples' travel needs. c. Airlines are attempting to charge people based on their willingness to pay. d. All of the above are correct.

D

15. The higher the concentration ratio, the a. more control an individual firm has to set prices. b. more competitive the industry. c. less competitive the industry. d. Both a and c are correct.

D

20. Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell a. industrial products. b. homogeneous products. c. consumer goods for which there are no close substitutes. d. highly-differentiated consumer goods

D

21. Because oligopoly markets have only a few sellers, the actions of any one seller a. do not affect other sellers in the market. b. can have a large impact on the profits of other sellers in the market. c. will affect how other firms behave in the market. d. Both b and c are correct.

D

22. A special kind of imperfectly competitive market that has only two firms is called a. a two-tier competitive structure. b. an incidental monopoly. c. a doublet. d. a duopoly.

D

23. As the number of firms in an oligopoly increases, the magnitude of the a. output effect increases. b. output effect decreases. c. price effect increases. d. price effect decreases.

D

28. Cartels in the United States are a. legal if price is competitively determined. b. legal if all firms in the industry agree to the terms of the cartel. c. legal if all conditions of the cartel are made public. d. illegal.

D

3. Which of the following is an example of a barrier to entry? a. Crystal charges a higher price than her competitors for her hair-styling services. b. Dan charges a lower price than his competitors for his dry-walling services. c. Jackie offers free samples of her loose-meat sandwiches to attract new customers. d. Roseanne obtains a copyright for a short story that she wrote and published

D

30. Predatory pricing occurs when a firm a. exercises its oligopoly power by raising its price through the formation of a cartel. b. exercises its monopoly power by raising its price. c. cuts its prices in order make itself more competitive. d. cuts its prices temporarily in order to drive out any competition.b. exercises its monopoly power by raising its price. c. cuts its prices in order make itself more competitive. d. cuts its prices temporarily in order to drive out any competition.

D

7. When a monopolist increases the number of units it sells, there are two effects on revenue. They are the a. demand effect and the supply effect. b. competition effect and the cost effect. c. competitive effect and the monopoly effect. d. output effect and the price effect.

D