Chapter 25 and Chapter 26

Which of the following types of firms use the marginal revenue equals marginal cost approach to maximize profits?

Both perfectly competitive and monopolistically competitive

What trade-offs do consumers face when buying a product from a monopolistically competitive firm?

Consumers pay a price greater than marginal cost but also have a wider array of choices.

Another measure of industry concentration is the:

Herfindahl-Hirschman Index

What is a​ cartel?

It is an association of producers in an industry that agree to set common prices and output quotas to prevent competition.

Which of the following best describes the additional revenue associated with selling an additional unit of output?

Marginal revenue

Which type of efficiency is achieved by a monopolistically competitive firm in the long run?

Neither allocative nor productive efficiency

How can makers of​ flat-panel TVs earn economic profits during the first few months after the introduction of new​ models?

New models create product differentiation that increases demand and raises prices above average total cost.​ Thus, firms will earn positive economic profits in the short run.

One of the three shops on campus that sell university logo clothing has found that if it sells a sweatshirt for​ $30 or​ more, the other two shops keep their prices constant and the store loses revenues.​ If, however, the shop reduces its price below​ $30, the other stores react by lowering their prices. What kind of market structure does this store​ face?

Oligopoly

Which of the following terms is defined as a market structure in which a small number of interdependent firms compete?

Oligopoly

What economic forces result in the dissipation of economic profits earned by manufacturers of​ flat-panel TVs?

Positive profits induce new firms to enter the market causing existing​ firms' demand to​ fall, which lowers prices toward average total cost.

If the​ store's marginal costs fluctuate up and down very​ slightly, how should the store adjust its​ prices?

Prices should stay the same since the store expects lost revenue whether it raises or lowers the price

Which of the following best describes how the product differentiation of monopolistically competitive firms may benefit consumers?

Product differentiation can locate firms more conveniently to consumers and offer versions of a product or service that better fits their needs.

What happens when network externalities are present?

The usefulness of a product increases with the number of consumers who use it.

A network effect exists when

The willingness to purchase a good depends on how many others have purchased it.

Which of the following mergers would be the best example of a vertical merger?

Toyota acquiring Whitewall Tires

When firms agree to act as a monopoly and set prices they are called __________.

a cartel

Negative market feedback means that

a good loses popularity because other consumers have chosen not to buy it.

In this​ case, then, the low and constant marginal cost is _______ the average cost.

below

An agreement among firms to charge the same price or to otherwise not compete is __________.

collusion

Equilibrium in a game in which players cooperate to increase their mutual payoff is called a:

cooperative equilibrium

Consequently the average fixed cost and average total cost _____________ as the volume of output increases

decreases

The monopolistically competitive firm sells a __________ product and faces a __________ demand curve.

differentiated, downward-sloping

A strategy that is the best for a firm, no matter what strategies other firms use is known as:

dominate strategy

If the firm set the​ price, or average​ revenue, of the product equal to the marginal​ cost, the firm would have ____________ since the marginal cost is the average cost.

economic losses less than

Credence goods are goods that consumers

find difficult to assess properly.

The four-firm concentration ratio is the percentage of sales accounted for by the largest:

four firms in the industry

Which of the following goods would most likely be advertised using largely persuasive ​advertising?

hair salon

When a firm produces an information product the initial or fixed costs are

high

An oligopoly is a market structure with:

high barriers to entry

Information products use​ information-intensive inputs and are characterized by

high fixed costs but low marginal costs.

For what type of market structure is the demand curve the same as marginal revenue?

high, very small

Simply Soft Drinks acquires Real Cola. This is a __________ merger.

horizontal

Monopolistic competition is similar to perfect competition because

in both industry​ structures, there are no barriers to entry.

BigBox and CheapStore are the only two firms in a market. Each firm must decide whether to price high or price low. The payoffs from each strategy combination are shown to the right long dash in millions of dollars. The first number in each pair is​ BigBox's profit; the second is​ CheapStore's profit. For​ BigBox, the dominant strategy in this game is to price low . This is the dominant strategy because

it is the best action for​ BigBox, no matter what CheapStore does.

A monopolistically competitive firm in a long-run equilibrium produces where:

its demand curve is tangent to its average total cost curve

A monopolistically competitive firm is characterized by the existence of many firms in the market, differentiated products and:

low barriers to entry

Since most of the costs are the initial fixed costs of​ development, once the product is​ developed, the cost of producing more units of the product are typically low and

marginal ,constant

A monopolistically competitive firm produces where:

marginal revenue equals marginal cost

If a monopolistically competitive firm's demand curve is above its average total cost curve, then this firm is making:

positive economic profit

Critics argue that monopolistically competitive markets are wasteful because

price exceeds marginal cost and minimum average total cost.

Megabucks and CashCow are the only two firms in a market. Each firm must decide whether to price high or price low. The payoffs from each strategy combination are shown to the right long dash in millions of dollars. The first number in each pair is​ Megabucks' profit; the second is​ CashCow's profit. If the firms​ cooperate, the strategy that Megabucks will choose is and the strategy that CashCow will choose is . If the firms behave​ opportunistically, the strategy that Megabucks will choose is and the strategy that CashCow will choose is .

price high, price high, price low, price low

A game where pursuing dominant strategies results in noncooperation that leaves everyone worse off is called a:

prisoner's dilemma

A firm may opt to pay millions of dollars for celebrity endorsements in order to:

signal to consumers that the advertised product is appealing and likely to be popular

Which of the following is an example of a search good​?

t shirt

Information goods can achieve significant economies of scale because __________.

the costs are almost all fixed costs

In the broadest sense, game theory studies the decisions of firms in industries where the profits of each firm depend on:

the firm's interactions with other firms

Monopolistically competitive firms have some control over price because:

the products they produce are differentiated

Cartels are more likely to fail when

there are no barriers to entry

Simply Soft Drinks acquires Louisiana Sugar Cane Inc. This is a __________ merger.

vertical

When information goods are distributed online the marginal cost of production is __________.

zero