MICROECONOMICS CH16 and 17 Monopolistic Competition and Oligopolies

A similarity between monopoly and monopolistic competition is that in both market structures

sellers are price makers rather than price takers

A distinguishing feature of an oligopolistic industry is the tension between

c. cooperation and self-intrest

As new firms enter a monopolistically competitive market, profits of existing firms

c. decline, and product diversity in the market increases.

which of the following statements about oligopolies is NOT correct?

Unlike monopolies and monopolistically competitive markets, oligopolies do NOT exceed their marginal costs

The lower the concentration ratio, the

c. less competitive the industry

When an industry has many firms, the industry is

c. monopolistically competitive if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products.

when maximizing profit, what price does Beatrice's charge for a cake?

$36

What price will the monopolistically competitive firm charge in this market?

$800

In monopolistically competitive markets, free entry and exit suggests that

All firms earn zero economic profits in the long run

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

Monopolistic competition is characterized by many buyers and sellers, product differentiation, and barriers to entry.

False

When a competitive firm hires labor up to the point at which the value of the marginal product of labor equals the wage, it also produces up to the point at which the price of output equals average variable cost.

False

When a firm decides to retain its earnings instead of paying dividends, the stockholders necessarily suffer.

False

if a monopolistically competitive firms incurs an increase in fixed costs its price will rise and its output will fall

False

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

P = AR

Which of the following conditions is characteristic of a monopolistically competitive firm in both short run and the long run?

P > MC

Monopolistic competition is considered inefficient because

Price exceeds marginal cost.

As the number of firms in an oligopoly becomes very large, the price effect disappears.

True

If the output effect from increased production is larger than the price effect, then an oligopolist would increase production

True

In the long run, monopolistically competitive firms produce where demand equals average total cost.

True

The idea that rational employers think at the margin is central to understanding how many units of labor they choose to employ.

True

The quantity available of one factor of production can affect the marginal product of other factors.

True

The term excess capacity refers to the fact that a firm produces a lower quantity than it would if it operated at the efficient scale

True

When prisoners' dilemma games are repeated over and over, sometimes the threat of penalty causes both parties to cooperate.

True

When a market is monopolistically competitive, the typical firm in the market is likely to experience

a positive or negative in the short run and a zero profit in the long run

Which of the following groups or entities has the authority to initiate legal suits to enforce antitrust laws?

a. Both the U.S. Justice Department and private citizens

Suppose that workers immigrate to Minnesota from Canada. Which of the following correctly describes what would happen in the market for labor in Minnesota?

a. The equilibrium wage would decrease, and the quantity of labor would increase. With more workers, the added output from an extra worker is smaller.

Assume that Samorola has entered into an enforceable resale price maintenance agreement with Trint and U-Mobile. Which of the following will always be true?

a. U-Mobile and Trint will always sell Samorolas for exactly the same price.

As a group, oligopolists would always earn the highest profit if they would

a. charge the same price that a monopolist would charge if the market were a monopoly

Consider the market for capital equipment. Suppose the market price of firms' output decreases. Holding all else constant, the equilibrium quantity of capital equipment will

a. decrease

Pursuing its own best interest, Lopes will

a. increase the size of its store and parking lot regardless of the decision made by HomeMax.

The equilibrium price in a market characterized by oligopoly is

a. lower than in monopoly markets and higher than in perfectly competitive markets

Consider a market served by a monopolist, Firm A. A new firm, Firm B, enters the market and, as a result, Firm A lowers its price to try to drive Firm B out of the market. This practice is known as

a. predatory pricing.

The demand curve for capital

a. reflects the marginal productivity of capital.

The wage is to the labor market as the

a. rental price of capital is to the capital market.

Sherman Antitrust Act

a. restricted the ability of competitors to engage in cooperative agreements.

Refer to Table 18-6 . Assuming MadeFromScratch is a competitive, profit-maximizing firm, how many workers will the firm hire?

a. three workers

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system, to be sold as one unit. This practice is known as

a. tying.

Refer to Scenario 18-5. When the labor market adjusts to its new equilibrium, we would expect the

a. value of the marginal product of labor to be higher than it was before the increase in demand for bottled water.

For a monopolistic competitive firm

at the profit-maximizing quantity of output, MR = MC

What happens to the labor supply curves in both countries when Mexican workers leave Mexico and move to the United States?

b. Labor supply increases in the United States and decreases in Mexico.

In the long run, a firm in a perfectly competitive market operates

b. at its efficient scale, and a monopolistically competitive firm operates with excess capacity.

A monopolistically competitive firm

b. experiences a zero profit in the long run.

According to the Clayton Act,

b. individuals can sue to recover damages from illegal cooperative agreements.

The marginal product of labor is defined as the change in

b. output per additional unit of labor

The prisoners' dilemma game

b. provides insight into why cooperation is difficult

Which of the following industries has the highest concentration ratio?

c. cigarettes

Efficient scale is reached

beyond 133.33 units.

Suppose that Jay-Z and Beyonce are duopolists in the music industry. In January, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By February, each singer is considering breaking the agreement. What would you expect to happen next?

d. Jay-Z and Beyonce will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price will decrease.

Refer to Figure 18-4. This graph illustrates the market for bakers who make homemade breads and breakfast pastries. If the bakery profession becomes more attractive to young women and men because of a new reality television show, what happens in the market for bakers?

d. Supply increases from S1 to S2.

As a result of a fire, a small business owner loses some of her computers and other equipment. If the property of diminishing returns applies to all factors of production, she should expect to see

d. an increase in the marginal productivity of her remaining capital and a decrease in the marginal productivity of her labor.

Cartels are difficult to maintain because

d. each firm has an incentive to deviate from its agreed output level.

If the value of the marginal product of labor exceeds the wage, then hiring another worker

d. increases the firm's profit

Refer to Scenario 18-6. As a result of these two events, holding all else constant, the equilibrium wages of university economics professors will

d. not be able to be determined without more information

A cooperative agreement among oligopolists is less likely to be maintained,

d. the greater the number of oligopolists.

From society's standpoint, cooperation among oligopolists is

d. undesirable, because it leads to output levels that are too low and prices that are too high.

the claim that advertising reduces the elasticity of demand is likely to be made by a defender of advertising

false

If we observe a great deal more advertising for Mucinex, an over-the-counter drug, than for a Grainger drill press, we can infer that

the market for Mucinex is more highly differentiated than the market for Grainger drill presses

a monopolistically competitive firm cannot earn an economic profit in the longrun

true