Chapter 13&14 Unlimited - Micro

Which of the following is not a characteristic of a monopolistically competitive market structure?

Each firm must react to actions of other firms.

A monopolistically competitive industry that earns economic profits in the short run will

experience the entry of new rival firms into the industry in the long run.

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

game theory.

If Panera Bread's "clean food" strategy succeeds and customers are willing to pay higher prices for their menu items, the company will

likely attract competitors that offer the same kind of food, and all else equal, eventually economic profits will be competed away.

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss.

loss of $6,000

A monopolistically competitive firm faces a downward-sloping demand curve because

of product differentiation.

Interdependence of firms is most common in

oligopolistic industries.

Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?

It is equal to the vertical distance c to g.

What is allocative efficiency?

It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it.

Which of the following is not a characteristic of a perfectly competitive market structure?

There are restrictions on exit of firms.

If a firm shuts down in the short run it will

suffer a loss equal to its fixed costs.suffer a loss equal to its fixed costs.

Refer to Figure 12-1. If the firm is producing 700 units, what is the amount of its profit or loss?

There is insufficient information to answer the question.

Which of the following is a characteristic of a monopoly?

There is only one seller in the market.

A perfectly competitive firm's short-run supply curve is

upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve.

Refer to Figure 12-11. Suppose the prevailing price is $20 and the firm is currently producing 1,350 units. In the long-run equilibrium, the firm represented in the diagram

will reduce its output to 1,100 units.

Hogrocket, which developed the Tiny Invaders game for the iPhone, found that to maintain sales in a profitable competitive market, the price of a product

will usually fall.

The term oligopoly indicates

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

What is a prisoner's dilemma?

a game in which players act in rational, self-interested ways that leave everyone worse off

A cartel is

a group of firms that enter into a formal agreement to fix prices to maximize joint profits.

The delivery of first-class mail by the U.S. Postal Service is an example of

a monopoly.

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

a payoff matrix.

If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will approximate those of

a pure monopoly.

Pure monopoly refers to

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

In the long run, the entry of new firms in an industry

benefits consumers by forcing prices down to the level of average cost.

A perfectly competitive firm faces a demand curve that is

horizontal

Firms use two marketing tools to differentiate their products. What are these two tools?

brand mangement and advertising.

The long-run equilibrium in a monopolistically competitive market is similar to the long-run equilibrium in a perfectly competitive market in that in both markets, firms

break even.

The price elasticity of demand coefficient measures

buyer responsiveness to price changes.

The demand for a product is inelastic with respect to price if

consumers are largely unresponsive to a per unit price change.

To maximize their profits and defend those profits from competitors, monopolistically competitive firms must

differentiate their products.

A market comprised of only two firms is called a

duopoly.

What characteristic of a competitive market has made the "long run pretty short" in the market for iPhone apps?

ease of entry

The primary force encouraging the entry of new firms into a purely competitive industry is

economic profits earned by firms already in the industry.

Collusion between two firms occurs when

firms explicitly or implicitly agree to adopt a uniform business strategy.

An oligopolistic industry is characterized by all of the following except

firms pursuing aggressive business strategies, independent of rivals' strategies.

Suppose James and Katherine are successful in establishing a profitable market for their "ghost restaurants" in what is a monopolistically competitive industry. In the long run, James and Katherine will most likely find it ________ to remain profitable as they face ________ competition in the "ghost restaurant" market.

harder; more

Both individual buyers and sellers in perfect competition

have to take the market price as a given.

Perfect competition is characterized by all of the following except

heavy advertising by individual sellers.

The long-run supply curve for a perfectly competitive, constant-cost industry

is horizontal.

A dominant strategy

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

Refer to Figure 12-1. If the firm is charging a price of $12 per unit

it is not selling any output.

Refer to Figure 12-1. If the firm is producing 200 units

it should increase its output to maximize profit.Refer to Figure 12-1.

Refer to Figure 13-11. The firm represented in the diagram

makes zero economic profit.

Monopolistic competition means

many firms producing a standardized or homogeneous product.

The key characteristics of a monopolistically competitive market structure include

many small (relative to the total market) sellers acting independently.

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

marginal revenue and marginal cost.

We would expect the cross elasticity of demand between Papsi and Coke to be

positive, indicating substitute goods.

The key characteristics of a monopolistically competitive market structure include

sellers selling similar but differentiated products.

In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use

sequential games.

When new firms are encouraged to enter a monopolistically competitive market

some existing firms must be earning economic profits.

Which of the following is a characteristic of an oligopolistic market structure?

There are few dominant sellers.

Refer to Figure 12-10. The total cost at the profit-maximizing output level equals

$3,300.

Refer to Table 13-1. What is the marginal revenue of the 3rd unit?

$5.50

Refer to Figure 12-10. Total revenue at the profit-maximizing level of output is

$6,000.

Refer to Table 12-2. What is Margie's total revenue if she sells 250 pounds of apples?

$750

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CHAPTER 12 STARTS

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With creation and growth of the internet,vacationers can now book their own flights, hotels, rental cars, and other travel logistics online. If this capability resulted in creative destruction, which if the following industries would have expected to decline the most as a result?

travel agencies

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is

8 units of utility

Refer to Table 14-1. What is the Nash equilibrium in this game?

AirPorter offers the discount, but LimoZeenz does not.

Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, what is the likely outcome in the market?

Both offer DSL internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million.

Refer to Figure 14-2. Now suppose that the government delays Xenophone's entry and Gigacom moves first, what is the likely outcome in the market?

Both offer internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million.

Profit is the difference between

total revenue and total cost.

The five competitive forces model was developed by

Michael Porter.

Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, is a threat by Gigacom that it will provide DSL service if Xenophone provides cable service a credible threat?

No, because Gigacom will lose $4.5 million in profits if it carries out its threat.

Refer to Table 14-1. Is there a dominant strategy for AirPorter and if so, what is it?

No, its outcome depends on what LimoZeenz does.

Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules. Refer to Table 13-2. What is the output (Q) that maximizes profit and what is the price (P) charged?

P = $50; Q = 6 cases

Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing price?

P4

Refer to Figure 12-14. Consider a typical firm in a perfectly competitive industry which is incurring short-run losses. Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Panel A

Refer to Figure 12-12. Consider a typical firm in a perfectly competitive industry that makes short-run profits. Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Panel B

Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?

Price is equal to marginal cost.

Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing output?

Q2 units

Refer to Figure 13-11. What is the allocatively efficient output for the firm represented in the diagram?

Q3 units

Refer to Figure 13-11. What is the productively efficient output for the firm represented in the diagram?

Q4 Units

Refer to Figure 12-2. The firm breaks even at an output level of

Q4 units.

What is always true at the quantity where a firm's average total cost equals average revenue?

The firm breaks even.

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

The firm will not sell any output.

In 2011, Red Robin announced that it would open 12 fast-casual restaurants, and in 2016 the company decided to abandon the fast-casual restaurant business. Which of the following reasons relating to the characteristics of monopolistic competition did the company give for getting out of the fast-casual restaurant business?

The restaurants were not differentiated enough from their full-service restaurants.

Refer to Table 14-1. Let's suppose the game starts with each firm offering the mid-week discount so that LimoZeenz earns a profit of $6,000 and AirPorter earns a profit of $12,000. Is there an incentive for any one firm to stop offering the mid-week discount?

Yes, LimoZeenz has an incentive to stop offering the discount, but AirPorter does not.

Refer to Table 14-1. Is there a dominant strategy for LimoZeenz and if so, what is it?

Yes, LimoZeenz should not offer the mid-week discount.

A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called

a business strategy.

What is productive efficiency?

a situation in which resources are allocated such that goods can be produced at their lowest possible average cost

The Law of Diminishing Returns results in

a total product curve that eventually increases at a decreasing rate.

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

allocative efficiency

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6,000 units of output. In this case, this industry would be

an oligopoly if the market quantity demanded is 18,000 units.

Economists would describe the U.S. automobile industry as

an oligopoly.

Other things equal, in which of the following cases would economic profit be the greatest?

an unregulated monopolist that is able to engage in price discrimination.

One reason why the "fast-casual" restaurant market is competitive is that

barriers to entry are low.

The price of a seller's product in perfect competition is determined by

market demand and market supply.

Oligopolies exist and do not attract new rivals because

of barriers to entry.

The music streaming industry, where a firm's profitability depends on its interactions with other firms, is an example of

oligopoly.

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

productive efficiency

The reason that the "fast-casual" restaurant market is monopolistically competitive rather than perfectly competitive is because

products are differentiated.

A Nash equilibrium is

reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.

When plasma television sets were first introduced prices were high and few firms were in the market. Later, economic profits attracted new firms and the price of plasma televisions fell. This example illustrates

that consumers receive this new technology "free of charge" in the sense that they only have to pay a price for plasma televisions equal to the lowest production cost.

Marginal revenue is

the change in total revenue divided by the change in the quantity of output.

Brand management refers to

the efforts to maintain the differentiation of a product over time.

Which of the following is not one of the five competitive forces?

the firm's ability to differentiate its product

A four-firm concentration ratio measures

the fraction of an industry's sales accounted for by the four largest firms.

For a perfectly competitive firm, average revenue is equal to

the market price.

The larger the number of firms in an industry

the more intense the rivalry among firms.

In a graph that illustrates a perfectly competitive firm, the marginal revenue curve is

the same as the firm's demand curve.

The minimum point on the average variable cost curve is called

the shutdown point.

In the long run, if price is less than average cost

there is an incentive for firms to exit the market.

Monopolistically competitive firms can differentiate their products

through marketing.

What is the profit-maximizing rule for a monopolistically competitive firm?

to produce a quantity such that marginal revenue equals marginal cost

Which of the following is not a reason why government officials are willing to impose entry barriers?

to promote an equitable distribution of income