ECON 201 Exam 3 Review Ch. 14

Which of the following will happen if some firms in a monopolistically competitive market incur losses in the short run and the market conditions are not expected to change A) New firms will enter the industry in the long run. B) Some firms will exit the industry in the long run. C) The existing firms will continue production in the long run. D) The demand for the goods produced by the firms will decrease.

Some firms will exit the industry in the long run

The following table shows the payoffs (profits) of the two firms in a duapoly industry who produce a nondifferentiated product. Each firm has two options: charge a high price of $70, or the minimum possible price of $50. The first number in the payoff cells is the profit of Firm A, and the second number is the profit of Firm B. Assume that both firms are after maximum profit.

$70:$70-$1,000,$1,000 $70:$50-$0,$2,000 $50:$70-$2,000,$0 $50:$50-$500,$500

A ________ is a formal organization of producers who agree on anticompetitive actions. A) duopoly B) monopoly C) cartel D) partnership

Cartel

Goods that are similar but are not perfect substitutes are called ________ goods. A) homogeneous B) normal C) differentiated D) inferior

Differentiated

All firms in a monopolistically competitive industry face a ________ demand curve, so they have ________. A) downward-sloping; no market power B) downward-sloping; market power C) flat; no market power D) flat; market power

Downward-sloping; market power

Which of the following is a feature of an oligopoly? A) Each firm in this market earns zero economic profits. B) There are no barriers to entry in this market. C) Each firm's actions affect the decisions of its rivals in this market. D) There are a large number of sellers in this market

Each firm's actions affect the decisions of its rivals in this market

If firms in a duopoly with homogeneous products compete on price, a Nash equilibrium is reached when each firm charges a price ________. A) higher than its average cost B) lower than its marginal cost C) equal to its marginal cost D) equal to its average cost

Equal to its marginal cost

Refer to the table above. What is the equilibrium result in this duopoly market? A) Firm A charging $70, and Firm B charging $50 B) Firm A charging $50, and Firm B charging $50 C) Firm A charging $70, and Firm B charging $70 D) Firm A charging $50, and Firm B charging $70

Firm A charging $50, and Firm B charging $50

A firm is said to have market power if it charges a price ________ of production A) equal to the average fixed cost B) equal to the marginal cost C) lower than the marginal cost D) higher than the marginal cost

Higher than the marginal cost

A duopolist faces the entire market demand for its product if ________. A) it charges a lower price than its rival B) it charges the same price as its rival C) it charges a price higher than its cost of production D) it charges a higher price than its rival

It charges a lower price than its rival

An oligopoly market with identical products is similar to a ________, but the key difference is_____ A) monopolistic competition; the oligopolist is a price-taker B) monopolistic competition market; oligopoly markets are more efficient C) perfect competition market; oligopoly markets are more efficient D) monopoly; the oligopolist must recognize the behavior of its competitors

Monopoly; the oligopolist must recognize the behavior of its competitors

Which option correctly sorts different market structures in terms of competitiveness, from the most competitive to the least? A) Perfect competition, monopolistic competition, monopoly, oligopoly B) Perfect competition, oligopoly, monopolistic competition, monopoly C) Monopolistic competition, perfect competition, monopoly, oligopoly D) Perfect competition, monopolistic competition, oligopoly, monopoly

Perfect competition, monopolistic competition, oligopoly, monopoly

Which of the following is true of monopolistic competition a. the product sold by each seller in this market structure is identical b. there is only one seller in this market structure c. there are a large number of sellers, each selling a differentiated product d. the firms in this market structures earn huge economic profits in the long run

There is a large number of sellers, each selling a differentiated product

f firms in an oligopoly industry producing differentiated products collude, ________. A) they increase output and decrease price to deter entry B) they collectively produce the monopoly output level and divide the monopoly profits C) they collectively produce up until Price = Marginal cost D) they produce the same output level as noncollusive oligopoly, but deter entry

They collectively produce the monopoly output level and divide the monopoly profits

Collusion can work if ________. A) a colluder values future monopoly profits more than current profits B) a colluder can cheat without being detected C) a colluder charges a price higher than its partners D) a colluder gives secret price discounts

a colluder values future monopoly profits more than current profits

An industry is deemed concentrated when ________. A) each firm in that industry has a small market share B) a few firms account for a large fraction of the total sales in that industry C) all the firms in that industry charge a price lower than the average cost of production D) most of the firms in that industry earn zero economic profits in the long run

a few firms account for a large fraction of the total sales in that industry

Collusion occurs when firms a. compete with one another by setting a price slightly lower than their rival's prices b. charge a price equal to their marginal cost of production c. compete with one another by differentiating their products d. conspire to set the quantity they produce or the prices they charge

conspire to set the quantity they produce or the prices they charge

The Herfindahl-Hirschman Index is used to ________. A) estimate the degree of competition in an industry B) measure the price elasticity of market supply in an industry C) measure the price elasticity of demand faced by a firm D) estimate the profit earned by firms in an industry

estimate the degree of competition in an industry

The ________ the Herfindahl-Hirschman Index, the ________ is A) higher; less concentrated an industry B) lower; higher the profits earned in an industry C) higher; more concentrated an industry D) lower; more concentrated an industry

higher; more concentrated an industry

The difference between an oligopoly with differentiated products and a monopolistic competition is ________. A) how many products firms produce B) how much influence firms have over prices C) how many firms there are in the market D) how many inputs firms use

how much influence firms have over prices

Refer to the figure above. If the government efficiently regulates the price for this monopolistically competitive firm, the firm will ________. A) make a negative profit B) make a positive profit C) decrease its marginal cost D) make zero profit

make a negative profit

As the number of firms in an oligopolistic market increases, a. prices tend to rise above marginal cost b. prices tend to decline toward marginal cost c. the market demand for a good tends to fall d. the profits earned by firms tend to rise

prices tend to decline toward marginal cost

Which of the following describes a feature of a monopolistically competitive market a. social surplus is maximized but at prices possibly above the competitive level b. social surplus is not maximized, but product diversity may add to consumer welfare c. social surplus is maximized, and some products will be priced below the competitive level d. social surplus is not maximized, but the prices will be lower than the competitive level

social surplus is not maximized, but product diversity may add to consumer welfare

The flatter (more relatively elastic) is the residual demand curve is, ________. A) the lower the deadweight loss in monopolistically competitive markets B) the greater the markup of price over marginal cost in monopolistically competitive markets C) the greater the deadweight loss in monopolistically competitive markets D) none of the above

the lower the deadweight loss in monopolistically competitive markets