AGB 144 Test 3

1. Game theory: A. is the analysis of how people (or firms) behave in strategic situations. B. is best suited for analyzing purely competitive markets. C. reveals that mergers between rival firms are self-defeating. D. reveals that price-fixing among firms reduces profits.

A. is the analysis of how people (or firms) behave in strategic situations.

1. Which of the following is a unique feature of oligopoly? A. mutual interdependence B. advertising expenditures C. product differentiation D. nonprice competition

A. mutual interdependence

At its profit-maximizing output, a pure nondiscriminating monopolist achieves: A. neither productive efficiency nor allocative efficiency. B. both productive efficiency and allocative efficiency. C. productive efficiency but not allocative efficiency. D. allocative efficiency but not productive efficiency.

A. neither productive efficiency nor allocative efficiency.

1. In a two-nation model, the equilibrium world price will occur where: A. one nation's export supply curve intersects the other nation's import demand curve. B. exports are exactly twice the level of imports. C. both nations' export supply curves are horizontal. D. both nations' import demand curves are vertical.

A. one nation's export supply curve intersects the other nation's import demand curve.

1. Acreage allotment programs were designed to: A. reduce the supply of agricultural products. B. make the demand for farm products more price elastic. C. bolster the demand for agricultural commodities. D. accelerate the movement of human resources out of farming.

A. reduce the supply of agricultural products.

Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing price for this firm will be: A. $19 B. $16. C. $13. D. $10.

B. $16.

Refer to the above diagram. To maximize profits or minimize losses this firm should produce: A. E units and charge price C. B. E units and charge price A. C. M units and charge price N. D. L units and charge price LK.

B. E units and charge price A.

1. Suppose the domestic price (no-international-trade price) of wheat is $3.50 a bushel in the United States while the world price is $4.00 a bushel. Assuming no transportation costs, the United States will: A. have a domestic shortage of wheat. B. export wheat. C. import wheat. D. neither export nor import wheat.

B. export wheat.

1. The primary gain from international trade is: A. increased employment in the domestic export sector. B. more goods than would be attainable through domestic production alone. C. tariff revenue. D. increased employment in the domestic import sector.

B. more goods than would be attainable through domestic production alone.

Economic profit in the long run is: A. possible for both a pure monopoly and a pure competitor. B. possible for a pure monopoly, but not for a pure competitor. C. impossible for both a pure monopolist and a pure competitor. D. only possible when barriers to entry are nonexistent.

B. possible for a pure monopoly, but not for a pure competitor

Which of the following best approximates a pure monopoly? A. the foreign exchange market B. the Kansas City wheat market C. the only bank in a small town D. the soft drink market

C. the only bank in a small town

1. In which of the following continuum of competition going from the most competition to the least amount of competition is monopolistically competitive markets correctly placed? A. purely competitive, oligopoly, monopolistically competitve, monopoly B. purely competitive, monopolistically competitve, oligopoly, monopoly C. monopoly, oligopoly, monopolistically competitve, purely competitive D. monopoly, monopolistically competitve, oligopoly, purely competitive

B. purely competitive, monopolistically competitve, oligopoly, monopoly

Graph A shows a downward sloping line where demand and marginal revenue are equal. Graph B shows two downward sloping lines where marginal revenue is below demand. Graph C shows a horizontal line where demand and marginal revenue are equal. Graph D shows two downward sloping lines where marginal revenue is greater than demand Which of the above diagrams correctly portray the demand (D) and marginal revenue (MR) curves of a monopoly? A. where demand and marginal revenue are equal and downward sloping B. where demand is greater than marginal revenue and both are downward sloping C. where demand and marginal revenue are equal and represented by a horizontal line D. where marginal revenue is greater than demand and both are downward sloping.

B. where demand is greater than marginal revenue and both are downward sloping

An unregulated pure monopolist will maximize profits by producing that output at which: A. P = MC. B. P = ATC. C. MR = MC. D. MC = AC.

C. MR = MC

1. Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in the United States while the world price is $1.00 a pound. Assuming no transportation costs, the United States will: A. have a domestic surplus of copper. B. export copper. C. import copper. D. neither export nor import copper.

C. import copper.

Pure monopolists may obtain economic profits in the long run because: A. of advertising. B. marginal revenue is constant as sales increase. C. of barriers to entry. D. of rising average fixed costs.

C. of barriers to entry.

Price discrimination refers to: A. selling a given product for different prices at two different points in time. B. any price above that which is equal to a minimum average total cost. C. the selling of a given product at different prices that do not reflect cost differences. D. the difference between the prices a purely competitive seller and a purely monopolistic seller would charge.

C. the selling of a given product at different prices that do not reflect cost differences.

Graph A shows a downward sloping line where demand and marginal revenue are equal. Graph B shows two downward sloping lines where marginal revenue is below demand. Graph C shows a horizontal line where demand and marginal revenue are equal. Graph D shows two downward sloping lines where marginal revenue is greater than demand Which of the above diagrams correctly portray the demand (D) and marginal revenue (MR) curves of a purely competitive seller A. where demand and marginal revenue are equal and downward sloping B. where demand is greater than marginal revenue and both are downward sloping C. where demand and marginal revenue are equal and represented by a horizontal line D. where marginal revenue is greater than demand and both are downward sloping.

C. where demand and marginal revenue are equal and represented by a horizontal line

1. The kinked-demand curve of an oligopolist is based on the assumption that: A. there is no product differentiation. B. competitors will match both price cuts and price increases. C. competitors will ignore a price cut but follow a price increase. D. competitors will follow a price cut but ignore a price increase.

D. competitors will follow a price cut but ignore a price increase.

1. When a monopolistically competitive firm is in long-run equilibrium: A. P = MC = ATC. B. MR = MC and minimum ATC > P. C. MR > MC and P = minimum ATC. D. MR = MC and P < minimum ATC.

A. P = MC = ATC

1. An extraordinarily small crop of farm products due to drought causes: A. a large increase in the price of farm products because the demand for farm products is price inelastic. B. only a slight increase in the price of farm products because the demand for farm products is income elastic. C. only a slight increase in the price of farm products because the demand for farm products is income inelastic. D. a large increase in the price of farm products because the demand for farm products is price elastic.

A. a large increase in the price of farm products because the demand for farm products is price inelastic

1. Nonprice competition refers to: A. advertising, product promotion, and changes in the real or perceived characteristics of a product. B. price increases by a firm that are ignored by its rivals. C. competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts. D. reductions in production costs that are not reflected in price reductions.

A. advertising, product promotion, and changes in the real or perceived characteristics of a product.

If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price: A. at which the marginal cost curve intersects the demand curve. B. at which marginal revenue is zero. C. at which the average total cost curve intersects the demand curve. D. which corresponds with the equality of marginal cost and marginal revenue.

A. at which the marginal cost curve intersects the demand curve.

1. Which of the following strategies is unlikely to lead to long term profits for oligopolies? A. competing solely on price B. investing in product development C. investing in establishing barriers to entry D. investing in maintaining barriers to entry

A. competing solely on price

1. The demand for agricultural products: A. has a price elasticity coefficient of about .20 to .25. B. is elastic with respect to income but inelastic with respect to price. C. has been decreasing about 8 percent per year. D. has been rising more rapidly than the national income.

A. has a price elasticity coefficient of about .20 to .25.

1. Because government price supports cause surplus production, government policies have been designed to: A. increase demand and decrease supply of farm products. B. decrease demand and increase supply of farm products. C. increase demand and increase supply of farm products. D. decrease demand and decrease supply of farm products.

A. increase demand and decrease supply of farm products.

Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be: A. 100. B. 160. C. 180. D. 210.

B. 160

1. Which of the following arguments is notgenerally made to justify farm subsidies? A. The "family farm" is an American institution that should be protected and nurtured. B. Agribusiness firms need subsidies to achieve economies of scale. C. Farmers sell their output in purely competitive markets, but must buy inputs from imperfectly competitive firms. D. Farmers cannot fully insure themselves against the risks unusual to farming, such as floods, droughts, and pests.

B. Agribusiness firms need subsidies to achieve economies of scale.

What do economies of scale, the ownership of essential raw materials, and patents have in common? A. They must all be present before price discrimination can be practiced. B. They are all barriers to entry. C. They all help explain why a monopolist's demand and marginal revenue curves coincide. D. They all help explain why the long-run average cost curve is U-shaped

B. They are all barriers to entry

Which of the following is not a barrier to entry? A. patents B. X-inefficiency C. economies of scale D. ownership of essential resources

B. X-inefficiency

1. The term oligopoly indicates: A. a one-firm industry. B. a few firms producing either a differentiated or a homogeneous product. C. many producers of a differentiated product. D. an industry whose four-firm concentration ratio is low.

B. a few firms producing either a differentiated or a homogeneous product.

1. A breakdown in price leadership leading to successive rounds of price cuts is known as: A. limit pricing B. a price war C. informal pricing D. price discrimination

B. a price war

If a regulatory commission wants to provide a natural monopoly with a fair return, it should establish a price that is equal to: A. minimum average fixed cost. B. average total cost. C. marginal cost. D. marginal revenue.

B. average total cost.

1. Countries engaged in international trade specialize in production based on: A. relative levels of GDP. B. comparative advantage. C. relative exchange rates. D. relative inflation rates.

B. comparative advantage.

1. In the United States cartels are: A. quite common in industries that produce nondurable goods. B. in violation of the antitrust laws. C. concentrated in monopolistically competitive industries. D. encouraged by government policy so firms can achieve economies of scale.

B. in violation of the antitrust laws

1. Cartels are difficult to maintain in the long run because: A. they are illegal in all industrialized countries. B. individual members may find it profitable to cheat on agreements. C. it is more profitable for the industry to charge a lower price and produce more output. D. entry barriers are insignificant in oligopolistic industries.

B. individual members may find it profitable to cheat on agreements.

Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run equilibrium that the pure monopolist's: A. price and output would be higher. B. price would be higher, but output would be lower. C. price and output would be lower. D. price and output would be the same.

B. price would be higher, but output would be lower.

Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic: A. loss of $320. B. profit of $480. C. profit of $280. D. profit of $600.

B. profit of $480.

1. What percentage of their spending do U.S. consumers allocate to food purchases? A. 1 percent B. 7 percent C. 12 percent D. 15 percent

C. 12 percent

Which of the following is correct? A. Both purely competitive and monopolistic firms are "price takers." B. Both purely competitive and monopolistic firms are "price makers." C. A purely competitive firm is a ""price taker,"" while a monopolist is a "price maker." D. A purely competitive firm is a ""price maker,"" while a monopolist is a "price taker."

C. A purely competitive firm is a ""price taker,"" while a monopolist is a "price maker."

1. Which of the following statements is correct? A. Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn zero economic profits in the long run. B. Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn positive economic profits in the long run. C. In the long run purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits. D. Monopolistically competitive firms earn zero economic profits in both the short run and the long run.

C. In the long run purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits.

Pure monopoly refers to: A. any market in which the demand curve to the firm is downsloping. B. a standardized product being produced by many firms. C. a single firm producing a product for which there are no close substitutes. D. a large number of firms producing a differentiated product

C. a single firm producing a product for which there are no close substitutes.

1. Check off programs were designed to: A. reduce the supply of agricultural products. B. make the demand for farm products more price elastic. C. bolster the demand for agricultural commodities. D. accelerate the movement of human resources out of farming.

C. bolster the demand for agricultural commodities.

1. Other things equal, economists would prefer: A. import quotas to tariffs and tariffs to voluntary export restrictions. B. free trade to import quotas and import quotas to tariffs. C. free trade to tariffs and tariffs to import quotas. D. import quotas to free trade and free trade to tariffs.

C. free trade to tariffs and tariffs to import quotas.

1. If the demand for an agricultural product is inelastic, a bumper crop will: A. raise price and decrease total revenues. B. raise price and increase total revenues. C. lower price and decrease total revenues. D. lower price and increase total revenues.

C. lower price and decrease total revenues

1. The monopolistically competitive seller maximizes profit by producing at the point where: A. total revenue is at a maximum. B. average costs are at a minimum. C. marginal revenue equals marginal cost. D. price equals marginal revenue.

C. marginal revenue equals marginal cost.

1. Long-run equilibrium for a monopolistically competitive firm where economic profits are zero results from: A. rising marginal costs. B. a perfectly elastic product demand curve. C. relatively easy entry. D. product differentiation and development.

C. relatively easy entry.

1. Which of the following arguments for trade protection is based on the premise that a nation should have a wide enough range of domestic industries to be self-sufficient if necessary? A. the increase-domestic-employment argument B. the cheap-foreign-labor argument C. the diversification-for-stability argument D. the infant-industry argument

C. the diversification-for-stability argument

1. Differences in production efficiencies among nations in producing a particular good result from: A. different endowments of fertile soil. B. different amounts of skilled labor. C. different levels of technological knowledge. D. all of these.

D. all of these.

1. OPEC provides an example of: A. an unwritten, informal understanding. B. noncollusive oligopoly. C. a monopolistically competitive industry. D. an international cartel.

D. an international cartel.

The MR = MC rule: A. applies only to pure competition. B. applies only to pure monopoly. C. does not apply to pure monopoly because price exceeds marginal revenue. D. applies both to pure monopoly and pure competition

D. applies both to pure monopoly and pure competition.

1. The demand for most agricultural products is: A. elastic with respect to price, but inelastic with respect to income. B. inelastic with respect to price, but elastic with respect to income. C. elastic with respect to both price and income. D. inelastic with respect to both price and income.

D. inelastic with respect to both price and income.

1. Monopolistic competition is characterized by a: A. few dominant firms and low entry barriers. B. large number of firms and substantial entry barriers. C. few dominant firms and substantial entry barriers. D. large number of firms and low entry barriers.

D. large number of firms and low entry barriers.

1. Tariffs: A. are per unit subsidies designed to promote exports. B. are also called import quotas. C. are excise taxes on goods exported abroad. D. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).

D. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).

1. In which of these continuums of degrees of competition (highest to lowest) is oligopoly properly placed? A. pure competition, oligopoly, pure monopoly, monopolistic competition B. oligopoly, pure competition, monopolistic competition, pure monopoly C. monopolistic competition, pure competition, pure monopoly, oligopoly D. pure competition, monopolistic competition, oligopoly, pure monopoly

D. pure competition, monopolistic competition, oligopoly, pure monopoly

1. Which of the following arguments for trade protection contends that new domestic industries need support to establish themselves and survive? A. the increase-domestic-employment argument B. the cheap-foreign-labor argument C. the diversification-for-stability argument D. the infant-industry argument

D. the infant-industry argument

A dilemma of regulation is that: A. the regulated price that achieves allocative efficiency is also likely to result in persistent economic profits. B. the regulated price that results in a ""fair return"" restricts output by more than would unregulated monopoly. C. regulated pricing always conflicts with the "due process" provision of the Constitution. D. the regulated price that achieves allocative efficiency is also likely to result in losses.

D. the regulated price that achieves allocative efficiency is also likely to result in losses.

1. The United States is a member of which international trade agreements The EU TPP NAFTA All of the above

NAFTA