Econ final
Collusion
is more difficult when there are many firms producing differentiated products in an industry.
One of the reasons why monopolies exist is because the government blocks the entry of more than one firm into a market. How might the government do this? The government could block entry by
issuing copyrights granting the exclusive right to use a creation during the creator's lifetimecopyrights granting the exclusive right to use a creation during the creator's lifetime.
When XYZ firm entered the market for good A two years back, it kept the price of its product low to attract customers away from its leading competitor. The firm has now established itself and has a market share of 20 percent. The management of XYZ is planning to increase price of A from the current $6 per unit to $7 per unit. Timothy Walters, the marketing head, however, feels this is not a good idea because it will reduce quantity demanded drastically from the current 1,200 units to 900 units. His colleague and the head of the sales department, Jake Mayers, feels that the quantity demanded would only decline by 250 units. According to Jake, the firm can afford to increase the price because even after the price increase they would still have significant market share. Timothy and Jake most likely agree with which of the following?
the demand for good A is elastic
How can the government impose barriers to entry?
the government can require occupational licensing to provide goods and services
Suppose a market hast wo firms, each with 50 percent market share. What is the Herfindahl-Hirschman Index (HHI) of concentration for this market? a. the HHI is b. higher HHI value correspond to _____________ market concentration
5000 greater
A monopoly is a firm that is the only seller of a good or service that does not have
A CLOSE SUBSTITUTE
if italy trades 110 units of cloth for 110 units of wine with Portugal, then, with trade, Italy will be able to consume the same amount of wine and nothing additional units of cloth_________________________. (enter a numeric response using an integer) If Italy trades 110 units of cloth for 110 units of wine with Portugal, then, with trade, PortugalPortugal will be able to consume the same amount of cloth and nothing additional units of wine_________________- (enter a numeric response using an integer)
A. 80 B. 110
Small business owner Jay Goltz described several decisions he made to reduce the fixed costs of his businesses, including replacing halogen lamps with LED lamps. Goltz noted, "...I'm guessing that many business owners could save a lot more than pennies on their fixed costs, and those savings...fall right to the bottom line." Source: Jay Goltz, "Not All Fixed Costs Are Truly Fixed," New York Times, May 25, 2011. a. The cost of electricity used to power the lights used in Mr. Goltz' businesses are fixed costs because these costs b. Goltz wrote that reducing fixed costs results in savings that "fall right to the bottom line" because
A. must be paid regardless of the volume of output. B. profit, the bottom line, is revenue minus fixed costs minus variable costs, so a reduction in fixed costs increases profit.
Which of the following economists did not help to develop game theory analysis?
Adam smith
If both countries specialize completely by producing only that for which they have a comparative advantage and then trade, what would be the terms of trade that would benefit both countries?
Both countries would benefit from trade if the Philippinesthe Philippines were to trade 20 comma 00020,000 bananas for 14 comma 00014,000 pineapples with ColumbiaColumbia.
What is the difference between absolute advantage and comparative advantage?
Comparative advantage is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors. While absolute advantage is the ability of an individual, a firm, or a country to produce more of a good or service than competitors when using the same amount of resources. A country will always be an exporter of a good where it has a comparative advantage in production.
The world is often described as having a global economy. How important is international trade to the United States?
In the U.S., importsimports are smaller fractions of GDP than in most other countries.
Refer to the graph to the right, which shows two potential demand curves in the market for photocopies at a printing company. If you start at point A on D1, what is the percentage change in quantity demanded when price falls from $30 to $20? Use the midpoint formula to calculate this percentage change.
Quantity demanded rises by 55 percent.
In Walnut Creek, California, there are three very popular supermarkets: Safeway, Whole Foods, and Lunardi's. While Safeway remains open twentyminus−four hours a day; Whole Foods and Lunardi's close at 9 pm. which of the following statements is true?
Safeway has a monopoly at midnight but not during the day.
If you own the only hardware store in a small town, do you have a monopoly?
Yes. You would have a monopoly if your profits are not competed away in the long run.
Give an example of a public franchise and an example of a public enterprise. An example of a public franchise is
a firm that is the sole, government-designated provider of electricityelectricity, and an example of a public enterprise is the government directly providing sewage servicesewage service.
A study of the consumption of beverages in Mexico found that: "Overall, for soft drinks a 10% price increase decreases the quantity consumed by 10.6%." Source: M.A. Colchero, et al., "Price Elasticity of the Demand for Sugar Sweetened Beverages and Soft Drinks in Mexico," Economics and Human Biology, Vol. 19, December 2015, pp. 129-137. a. Given this information, the price elasticity of demand for soda in Mexico is b. Is demand price elastic or price inelastic? Briefly explain.
a. -1.06 b.Elastic, because the percentage change in quantity demanded is greater than the percentage change in price.
a. How does collusion make firms better off? b. Given the incentives to collude, why doesn't every industry become a cartel?
a. The firms can act as a single entity, like a monopoly. b. all of above
You own a hot dog stand that you set up outside the student union every day at lunch time. Currently,you are selling hot dogs for a price of $3, and you sell 30 hot dogs a day (point A on the diagram to the right). You are considering cutting the price to $2. The graph to the right shows two possible increases in the quantity sold as a result of your price cut. Use the information in the graph (new quantities are given on the horizontal axis) to calculate the price elasticityLOADING... between these two prices on each of the demand curves. Use the midpoint formula to calculate the price elasticities. a..On the demand curve containing the points "A" and "B", the price elasticity of demand for a price cut from $3 to $2 is nothing. _________________(Hint: Include the negative sign and enter your response rounded to two decimal places.) b. On the demand curve containing the points "A" and "C", the price elasticity of demand for a price cut from $3 to $2 is nothing.______________________- (Hint: Include the negative sign and enter your response rounded to two decimal places.)
a. -1.67 b. -0.08
Frances sells pencils in the perfectly competitive pencil market. Her output per day and costs are seen in the table to the right. a. If the current equilibrium price in the pencil market is $1.601.60, what price will Frances charge? b. Find the correct quantities for the missing values in the table, as represented by (i, ii, iii, and iv; enter all values as dollars and cents). c. What quantity of pencils will maximize Frances' profit?
a. 1.60 b. 1.60, 6.40, 1.60, 11.20 c. 6
Suppose a cable company provides cable service to a small town. The total revenue, marginal revenue, total cost, and marginal cost of providing various quantities of cable subscriptions (units in thousands per month) are presented in the table below. a. Assume the local cable company is a monopoly. To maximize profits, the monopoly should produce b. At that level of output, the cable company will earn economic profits of
a. 4 b. 88
Consider a market with four firms. Suppose the first firm has a 49% market share, the second firm has a 30% market share, the third firm has a 20% market share, and the fourth firm has a 11% market share. a. Using the Herfindahl-Hirschman Index (HHI), what is this market's level of concentration? b. Now suppose the third and fourth firms propose to merge. Were they to merge, then the market's HHI would increase to c. Given the increase in the HHI that would be caused by the proposed merger, would the government likely allow such a merger to occur?
a. 49^2+30^2+20^2+1^2= 2401+900+400 b. 49^2+30^2+21^2 c. yes
a. The monopoly should produce ________ units of output and charge a price of _______ b. the monopoly profit is ________
a. 5, 300 b. 816
Based on the numbers in the table below, how many bushels should this farmer produce in order to maximize profit? What is the profit-maximizing level of output if the farmer can produce only whole units of output?
a. 6 bushes b. 6 bushes
a. Why would high-technology firms not be considered monopolies in the "classic sense"? b.Why would the article state that for the most profitable high-technology firms "scale matters"?
a. They have achieved large market shares without the benefit of barriers to entry that usually result in monopolies. b. They provide goods whose usefulness and popularity increase with the number of people who use them, which explains why "scale matters."
The U.S. Department of Justice investigated whether the four major U.S. airlines were colluding. Some analysts believed the airlines were restraining increases in capacity by failing to buy more planes or fly additional routes in order to reduce pressure to cut ticket prices. An airline industry analyst commented on the investigation, "I don't sense that the executives talk to each other. They actually hate each other, truth be told. But with so few of them left, there's almost a natural oligopoly." Source: Christopher Drew, "Airlines Under Justice Dept. Investigation Over Possible Collusion," New York Times, Jul 1, 2015. a. The analyst's reference to a "natural oligopoly" describes b. Would it be necessary for the airline executives to talk to each other to collude?
a. a market in which the number of firms that minimizes total industry cost is greater than one, but not so large as to make the market competitive. b. No, because there are other mechanisms for parallel behavior such a price signaling and signal advertising.
a. Which area(s) in the graph to the right show the reduction in consumer surplus that results from this industry being a monopoly rather than being perfectly competitive? b. Which of the following are effects of monopoly?
a. area A and area B b. all of above
An article in the New York Times on the airline industry describes airlines as being "burdened by high fixed costs." Source: Kevin Allison, "Warren Buffett, in a Switch, Warms to Airline Industry," New York Times, November 15, 2016. A. Which of the following is likely to be the most important fixed costs for an airline? B. The fixed costs of an airlines would represent a relatively
a. cost of fuel b. large
The late Nobel Laureate economist George Stigler wrote: "[The] purely "economic" case against monopoly is that it reduces aggregate economic welfare... When the monopolist raises prices above the competitive level in order to reap his monopoly profits, customers buy less of the product, less is produced, and society as a whole is worse off." Source: George J. Stigler, "Monopoly," The Concise Encyclopedia of Economics, http://www.econlib.org/library/Enc/Monopoly.html. In a graph, indicate the price that is at what Stigler refers to as "the competitive level." Compare this price to the price which earns the firm "monopoly profits." 1.) Using the point drawing tool, indicate the competitive price and output level. Label your point 'Perfect competition.' 2.) Using the point drawing tool, indicate the profit-maximizing monopoly price and quantity. Label your point 'Monopoly.' Carefully follow the instructions above and only draw the required objects. Use your graph to explain why society is worse off when a monopolist charges a price that earns monopoly profits rather than when price is set at the "competitive level."
a. economic surplus is reduced
a. A natural monopoly occurs when b. Refer to the graph to the right. Suppose initially one firm supplies 30 billion kilowatt-hours of electricity. If a second firm enters the market and each firm now supplies 15 billion kilowatt-hours of electricity, then the average total cost of electricity
a. economies of scale are large enough so that one firm can supply the entire market at a lower average total cost than can two or more firms??????? b. rises from $0.04 to $0.06.
Suppose a firm in a perfectly competitive market is making a profit. Assume the market price is $36. a. The firm's demand curve is b. The firm's profit-maximizing quantity is that quantity where c. The firm's profit can be represented by a rectangle with a base equal to the quantity produced and a height equal to the
a. horizontal at the market price b. price equal marginal cost c. difference in price and average total cost
According to a news story about the bus system in the Lehigh Valley in Pennsylvania, "Ridership fell 14 percent in 2012 after a 33 percent increase" in bus fares. Source: Dan Hartzell, "Rebounding from a 2012 Rate Hike, LANTA's Ridership Was up Last Year," (Allentown, PA) Morning Call, March 13, 2014 a. Given this information, the demand for bus trips is____________ b. The best explanation for this result is that
a. inelastic b. bus trips are a necessity for those without cars.
Economist Harvey Leibenstein argued that the loss of economic efficiency in industries that are not perfectly competitive has been understated. He argues that when competition is weak, firms are under less pressure to adopt the best techniques or to hold down their costs. He refers to this effect as "x-inefficiency." If x-inefficiency causes a firm's marginal costs to rise, how is the deadweight loss caused by a monopoly understated? Suppose MC 1MC1 is the marginal cost of production with perfect competition and MC 2MC2 is the marginal cost of production with x-inefficiency. a. A monopoly with x-inefficiency will produce a quantity that is b. The deadweight loss with x-inefficiency production is equal to the area of
a. less then b. a triangle equal to the difference in demand and marginal cost for units between the quantity produced in a perfectly competitive market and the quantity produced by a monpoly.
Suppose the figure represents the market for diamond necklaces, where the company that supplies necklaces is a monopoly because it is the only firm with access to diamond mines. What is the firm's profit-maximizing price and quantity? What are profits? a. The firm's profit-maximizing quantity is that quantity where b. The firm's profit can be represented by
a.marginal revenue equals marginal cost. b. a rectangle with a base equal to the quantity produced and a height equal to the difference in price and average total cost.
How is the price elasticity of demand measured?
by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price
Coca-Cola and Pepsi both advertise aggressively, but would they be better off if they didn't? Their commercials are usually not designed to convey new information about their products. Instead, they are designed to capture each other's customers. The payoff matrix to the right illustrates the following information:
coca-cola: advertise pepsi: advertise there is only a Nash equilibrium in which both firms advertise
Three examples of oligopolies in the United States are industries that produce or sell
computers, athleticfootware, and cigarettes
A natural monopoly
develops automatically due to economies of scale.
Does a monopolist have a supply curve? Briefly explain. (Hint: Look again at the definition of a supply curve in Chapter 3 and consider whether this applies to a monopolist.) A monopolist
does not have a supply curve because it is a price maker with one profit-maximizing price-quantity combination.
The most important barriers to entry are
economies of scale, ownership of a key input, and government imposed barriers.
A snack shop inside a hotel in a busy city has a monopoly on food sales if it is the only food vendor in the hotel that is open 24 hours a day.
false
Governments grant patents to
give firms an opportunity to recover research and development costs from the market.
For many years, the Aluminum Company of America left parenthesis Alcoa right parenthesisthe Aluminum Company of America (Alcoa) essentially operated as a monopoly. What made this company a monopoly? The Aluminum Company of America left parenthesis Alcoa right parenthesisThe Aluminum Company of America (Alcoa) was essentially a monopoly because
it had almost exclusive control of the world's supply of bauxitebauxite, used to make aluminumaluminum.
The guidelines used by the Department of Justice and the Federal Trade Commission when evaluating proposed mergers include three main parts. What are they? The three main parts of the mergerLOADING... guidelines involve
market definition, measure of concentration, and merger standards.
Without barriers to entry,
new firms will enter industries where firms are earning economic profits.
The primary reason that Alcoa faced limited competition was because
only Alcoa had access to most of the bauxite.
The 10minus−year protection period from generic competition for drug manufacturers is a form of
patent
Which of the following firms is patent protection of vital importance to?
pharmaceutical firms
Give an example of an antitrust law and give a brief description of how that law affects the government's antitrust policy.
the Clayton act prohibits firms from being stock in competitors
Joe Santos owns the only pizza parlor in a small town that is also home to a McDonald's, a Taco Bell, and a Kentucky Fried Chicken. Using a broad definition of a monopoly, Joe has a monopoly if the menu items sold at the other restaurants are not considered close substitutes for the food sold at the pizza parlor.
true
A monopolist is a price maker because
when a monpolist raises its prices, it loses some but not all customers.
An oligopoly is a market structure
where a small number of interdependent firms compete.
The prisoners' dilemma illustrates
why firms will not cooperate if they behave strategically.
a. The Department of Justice and the Federal Trade Commission__________ b. The Department of Justice and the Federal Trade Commission _______
would challenge for both
When home builders construct a new housing development, they will usually sell the rights to lay cable to a single cable television company. As a result, anyone buying a home in that development is not able to choose between competing cable companies. Some cities have begun to ban such exclusive agreements. Williams Township, Pennsylvania, decided to allow any cable company to lay cable in the utility trenches of new housing developments. The head of the township board of supervisors argued, "What I would like to see and do is give the consumers a choice. If there's no choice, then the price [of cable] is at the whim of the provider." Source: Sam Kennedy, "Williams Township May Ban Exclusive Cable Provider Pacts," (Allentown, Pennsylvania) Morning Call, November 5, 2004, p. D1. In a situation in which the consumers in a housing development have only one cable company available, is the price really at the whim of the company? Would a company in this situation be likely to charge, say, $500 per month for basic cable services? Explain why or why not. A cable company in this situation
would not be free to charge any price it chooses because it would still be constrained by consumer demand.
Luke's Express Diner is the only place that sells burgers in a remote town in Arizona. As one of the long-time residents of the town, Bertha Hayes contends that the burgers at Luke's are priced a bit too high. She claims that this is because the diner enjoys monopoly power in the town. Her neighbor, Ruth Ernes, disagrees that the diner is in a position to over-price products due to monopoly power because she herself knows a lot of people who don't like the food there. Which of the following, if true, will weaken Bertha's argument?
Luke's Express Diner cut prices when a nearby coffee shop cut prices on its sandwiches.
Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?
No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.
In game theory, the three key characteristics of a game are
rules, strategies, and payoffs.
