Microeconomics Exam 4

firm in monopolistic competition

sells a product that is differentiated from those of its competitors

the supply of labor arises from individuals' tradeoff between

work and leisure

Monopoly arises when:

a single firm owns a key resource the government gives a firm the exclusive right to produce a good a single firm can supply the entire market a lower cost than many firms could

Critics of markets that are characterized by firms that sell brand-name products argue that brand names encourage consumers to pay more for branded products that have elastic demand curves. are very different from generic products. are indistinguishable from generic products. consumer-advocate groups have found to be inferior.

are indistinguishable from generic products.

logic of prisoners' dilemma applies to many situations

arms races, common-resource problems, and oligopolies

For a monopolistically competitive firm, marginal revenue and price are the same. at the profit-maximizing quantity of output, marginal revenue equals marginal cost. at the profit-maximizing quantity of output, price equals marginal cost. at the profit-maximizing quantity of output, price equals the minimum of average total cost.

at the profit-maximizing quantity of output, marginal revenue equals marginal cost.

Price discrimination: is illegal in the United States and Europe. can occur in both perfectly competitive and monopoly markets. is illogical because it does not maximize profits. can maximize profits if the seller can prevent the resale of goods between customers.

can maximize profits if the seller can prevent the resale of goods between customers

both a firm in monopolistic competition and a monopoly firm

charge a price above marginal cost

price discrimination

charge different prices for the same good based on a buyer's willingness to pay. can raise economic welfare by getting the good to some consumers who would otherwise not buy it

both a firm in monopolistic competition and a firm in perfect competition

equate marginal revenue and marginal cost

both a firm in monopolistic competition and a monopoly firm

equate marginal revenue and marginal cost

a firm in monopolistic competition

has marginal revenue less than price

monopsony

market with one buyer

perfect price discrimination

no deadweight loss entire surplus in the market goes to the monopoly producer

Monopoly maximizes

profit

Suppose that the market for labor is initially in equilibrium. An increase in immigration will cause the equilibrium wage and the equilibrium quantity of labor to rise. and the equilibrium quantity of labor to fall. to rise and the equilibrium quantity of labor to fall. to fall and the equilibrium quantity of labor to rise

to fall and the equilibrium quantity of labor to rise

Oligopolists maximize their

total profits by forming a cartel and acting like a monopolist

Which of the following is not an argument made by critics of advertising? Advertising manipulates people's tastes. Advertising impedes competition. Advertising promotes economies of scale. Advertising increases the perception of product differentiation.

Advertising promotes economies of scale.

Monopoly demand curve

Downward-sloping, MR < P

Monopoly produces Q where

MR = MC, but Q is not efficient For this Q, the price is on the demand curve P > MR = MC Causes deadweight loss

Which of the following can eliminate the inefficiency inherent in monopoly pricing? Arbitrage Cost-plus pricing Price discrimination Regulations that force monopolies to reduce their levels of output

Price discrimination

Which of the following is a necessary characteristic of a monopoly? The firm is the sole seller of its product. The firm's product has many close substitutes. The firm generates a large economic profit. The firm is located in a small geographic market.

The firm is the sole seller of its product.

Which of the following statements about oligopolies is not correct? An oligopolistic market has only a few sellers. The actions of any one seller can have a large impact on the profits of all other sellers. Oligopolistic firms are interdependent in a way that competitive firms are not. Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal costs.

Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal costs.

The fundamental source of monopoly power is: barriers to entry profit increasing average total cost a product without close attributes

barriers to entry

In order for antitrust laws to raise social welfare, the government must disallow synergy benefits from accruing to monopolists. disallow any mergers from taking place. be able to determine which mergers are desirable and which are not. always attempt to keep markets in their most competitive form.

be able to determine which mergers are desirable and which are not

a firm in monopolistic competition

charges a price above marginal cost

If a monopolist is able to perfectly price discriminate, consumer surplus is always increased. total surplus is always decreased. consumer surplus and deadweight losses are transformed into monopoly profits. the price effect dominates the output effect on monopoly revenue.

consumer surplus and deadweight losses are transformed into monopoly profits

The social cost of a monopoly is equal to its: economic profit fixed cost deadweight loss variable cost

deadweight loss

Consider the market for capital equipment. Suppose the price of firms' output decreases. Holding all else constant, the equilibrium rental price of capital equipment will decrease. increase. not change. not be able to be determined without more information.

decrease.

a monopoly firm

earns economic profit in the long run

neither a firm in monopolistic competition nor a firm in perfect competition

earns economic profit in the long run

a firm in monopolistic competition

faces the entry of new firms selling similar products

To say that a firm is competitive in the labor market is to say that the firm has little or no control over the number of workers it hires. has little or no control over the wage it pays its workers. is aggressive in pursuing the most skilled workers in the labor market. is aggressive in trying to keep its workers' wages low.

has little or no control over the wage it pays its workers.

In both perfect competition and monopolistic competition, each firm sells identical products. faces a downward-sloping demand curve its product. has some monopoly power. has many competitors.

has many competitors.

The equilibrium quantity in markets characterized by oligopoly is higher than in monopoly markets and higher than in perfectly competitive markets. higher than in monopoly markets and lower than in perfectly competitive markets. lower than in monopoly markets and higher than in perfectly competitive markets. lower than in monopoly markets and lower than in perfectly competitive markets.

higher than in monopoly markets and lower than in perfectly competitive markets.

In a natural monopoly, society would be better off if antitrust laws were used to create many different firms in the market. the marginal cost curve is positively sloped. if the government requires marginal cost pricing, it will likely have to subsidize the firm. the marginal revenue curve is horizontal.

if the government requires marginal cost pricing, it will likely have to subsidize the firm

In the long run, a monopolistically competitive firm produces a quantity that is equal to the efficient scale. less than the efficient scale. greater than the efficient scale. consistent with diseconomies of scale.

less than the efficient scale.

A monopolistically competitive industry is characterized by many firms, differentiated products, and barriers to entry. many firms, differentiated products, and free entry. a few firms, identical products, and free entry. a few firms, differentiated products, and barriers to entry.

many firms, differentiated products, and free entry.

In the short run, a firm in a monopolistically competitive market operates much like a firm in a perfectly competitive market. firm in an oligopoly. monopolist. nonprofit firm.

monopolist.

The two types of imperfectly competitive markets are monopoly and monopolistic competition. monopoly and oligopoly. monopolistic competition and oligopoly. monopolistic competition and cartels.

monopolistic competition and oligopoly.

When a production function exhibits a diminishing, but positive, marginal product of labor, output increases, but at an increasing rate, as more workers are employed. output increases, but at a decreasing rate, as more workers are employed. output declines as more workers are employed. the effects on marginal product are ambiguous.

output increases, but at a decreasing rate, as more workers are employed.

In the short run, a firm operating in a monopolistically competitive market: produces an output level where marginal revenue equals average total cost. produces an output where marginal revenue equals marginal cost, and the price is determined by demand. must earn zero economic profits. maximizes revenues as well as profits

produces an output where marginal revenue equals marginal cost, and the price is determined by demand

One problem with government operation of monopolies is that: a benevolent government is likely to be interested in generating profits for political gain. monopolies typically have rising average costs. the government typically has little incentive to reduce costs. a government-regulated outcome will increase the profitability of the monopoly.

the government typically has little incentive to reduce costs.

Which of the following is not an example of price discrimination? A zoo charges a lower price for a child's ticket than for an adult's ticket. A design school rebates part of the cost of tuition in the form of financial aid for underprivileged students. A local supermarket chain offers a "buy three get one free" deal. A bakery charges a higher price for brownies than cookies.

A bakery charges a higher price for brownies than cookies.

Which of the following examples illustrates an oligopoly market? A farmers' market with many individuals selling sweet corn and tomatoes A city whose electrical service is provided by one electric co-operative A city with two firms who are licensed to sell school uniforms for the local schools A city with many independently owned hair styling salons

A city with two firms who are licensed to sell school uniforms for the local schools

Which of the following would be most likely to have monopoly power? A large supermarket chain A local cable TV provider A large drug store A gas station

A local cable TV provider

Which of the following statements is not correct? Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry. Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly. Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly. Both monopolistic competition and perfect competition are characterized by product differentiation.

Both monopolistic competition and perfect competition are characterized by product differentiation.

Which of the following groups or entities has the authority to initiate legal suits to enforce antitrust laws? Only the U.S. Justice Department Only private citizens Only the President of the United States Both the U.S. Justice Department and private citizens

Both the U.S. Justice Department and private citizens

Which of the following is true about a monopolistically competitive firm? It can earn an economic profit in the short run, but not the long run. It can earn an economic profit in the short run and the long run. It can earn an economic profit in the long run, but not the short run. It cannot earn a economic profit in either the short or long run.

It can earn an economic profit in the short run, but not the long run.

What happens to the labor supply curves in both countries when Mexican workers leave Mexico and move to the United States? Labor supply decreases in Mexico and decreases in the United States. Labor supply increases in the United States and increases in Mexico. Labor supply increases in the United States and decreases in Mexico. Labor supply increases in Mexico and decreases in United States.

Labor supply increases in the United States and decreases in Mexico.

Which of the following statements is correct? Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers. Monopolistic competition is similar to perfect competition because both market structures are characterized by differentiated products. Monopolistic competition is similar to oligopoly because both market structures are characterized by strategic interaction between firms in the market. Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves facing each firm.

Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers.

When an oligopoly market reaches a Nash equilibrium, the market price will be different for each firm. the firms will not have behaved as profit maximizers. a firm will have chosen its best strategy, given the strategies chosen by other firms in the market. a firm will not take into account the strategies of competing firms.

a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

Granting a pharmaceutical company a patent for a new medicine will lead to: a product that is priced higher than it would be without the exclusive rights. reduced incentives for pharmaceutical companies to invest in research and development. lower quantities of output than without the patent. lower prices than without the patent.

a product that is priced higher than it would be without the exclusive rights

because factor demand reflects the value of the marginal product of that factor, in equilibrium

each factor is compensated according to its marginal contribution to the production of goods and services

Cartels are difficult to maintain because ​the monopoly output is very difficult to determine. ​the number of firms is always large. ​costs to the firms in a cartel are continually rising. each firm has an incentive to deviate from its agreed output level.

each firm has an incentive to deviate from its agreed output level.

In the prisoners' dilemma game, self-interest leads each prisoner to stay silent. to the follow-through of any agreement that the prisoners might have made before being questioned. to an outcome that is better for both prisoners. each prisoner to confess.

each prisoner to confess.

An increase in the supply of labor has the effect of increasing the marginal product of labor. increasing the wage. decreasing the marginal product of labor. decreasing the wage

decreasing the wage

the demand for factors is a

derived demand that comes from firms that use the factors to produce goods and services

neither a firm in monopolistic competition nor a monopoly firm

has marginal revenue that is the same as price

Price discrimination adds to social welfare in the form of: increased total surplus. decreased total surplus reduced costs of production. increased consumer surplus and decreased producer surplus.

increased total surplus

If the value of the marginal product of labor exceeds the wage, then hiring another worker decreases the firm's total output. decreases the firm's total cost. decreases the firm's total revenue. increases the firm's profit.

increases the firm's profit.

According to the Clayton Act, lawyers are given an incentive to reduce the number of cases involving cooperative arrangements. individuals can sue to recover damages from illegal cooperative agreements. competing executives cannot talk about fixing prices. if a person can prove that she was damaged by an illegal arrangements to restrain trade, that person can sue and recover ten times the damages she sustained.

individuals can sue to recover damages from illegal cooperative agreements.

For a firm to price discriminate, it must be a natural monopoly. it must be regulated by the government. it must have some market power. consumers must tell the firm what they are willing to pay for the product.

it must have some market power

economy's income is distributed in the markets for the factors of production:

labor, land, and capital

If the distribution of water is a natural monopoly, then: a single firm cannot serve the market at the lowest possible average total cost allowing for competition among different firms in the water-distribution industry is efficient multiple firms would likely each have to pay large fixed costs to develop their own network of pipes average cost increases as the quantity of water produced increases

multiple firms would likely each have to pay large fixed costs to develop their own network of pipes

prisoners' dilemma shows that self-interest can prevent

people from maintaining cooperation, even when cooperation is in their mutual interest

policymakers use the antitrust laws to

prevent oligopolies from engaging in behavior that reduces competition application of these laws can be controversial, because some behavior that can appear to reduce competition may in fact have legitimate business purposes

Selling the same good at different prices to different customers: arbitrage price discrimination collusion consumer surplus

price discrimination

In imperfectly competitive markets, increasing production will decrease the price of all units sold. This concept is known as the income effect. output effect. price effect. cartel effect.

price effect.

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms, marginal revenue will equal average total cost. price will exceed marginal cost. marginal cost will exceed average total cost. average total cost will be rising.

price will exceed marginal cost.

a firm in perfect competition

produces at the minimum average total cost in the long run

neither a firm in monopolistic competition nor a monopoly firm

produces the socially efficient quantity of output

The Sherman Antitrust Act was concerned with self-interest dominated Nash equilibriums in prisoners' dilemma games. does not allow executives of competing companies to break agreements they made with one another. was passed in 1946. prohibits price-fixing in the sense that competing executives cannot even talk about fixing prices

prohibits price-fixing in the sense that competing executives cannot even talk about fixing prices

When a monopolistically competitive firm raises its price, quantity demanded falls to zero. quantity demanded declines but not to zero. the market supply curve shifts outward. quantity demanded remains constant.

quantity demanded declines but not to zero.

The demand curve for capital is vertical. is horizontal. is derived from households' decisions concerning saving and spending. reflects the marginal productivity of capital.

reflects the marginal productivity of capital.

The wage is to the labor market as the rental price of capital is to the capital market. purchase price of capital is to the capital market. supply of land is to the land market. demand for land is to the land market.

rental price of capital is to the capital market.

In monopolistically competitive markets, economic losses suggest that some existing firms will exit the market. suggest that new firms will enter the market. are minimized through government-imposed barriers to entry. are never possible.

suggest that some existing firms will exit the market.

price paid to each factor adjusts to balance the

supply and demand for that factor

the larger the number of firms in the oligopoly,

the closer the quantity and price will be to the levels that would prevail under perfect competition

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost, the firm must be earning a positive economic profit. the firm may be incurring economic losses society benefits due to the firm's excess capacity. new firms will enter the market in the long run.

the firm may be incurring economic losses

A cooperative agreement among oligopolists is more likely to be maintained, the greater the number of oligopolists. the larger the number of buyers of the oligopolists' product. the smaller the number of buyers of the oligopolists' product. the more likely it is that the game among the oligopolists will be played over and over again.term-43

the more likely it is that the game among the oligopolists will be played over and over again.

because factors of production are used together, the marginal product of any one factor depends on

the quantities of all factors that are available as a result, a change in the supply of one factor alters the equilibrium earnings of all the factors

if oligopolists make decisions about production levels individually,

the result is a greater quantity and a lower price than under the monopoly outcome

Monopoly

the sole seller in its market

As the number of firms in an oligopoly increases, the output effect equals the price effect. each seller becomes more concerned about its impact on the market price. the total quantity of output produced by firms in the market gets closer to the socially efficient quantity. the price of the product greatly exceeds marginal cost

the total quantity of output produced by firms in the market gets closer to the socially efficient quantity.

Whenever a cartel in a duopoly breaks down,​ ​both firms obtain higher profits. total output in the market will rise. ​price in the market will rise. ​the socially optimal output will be produced.

total output in the market will rise.

competitive, profit-maximizing firms hire each factor

up to the point at which the value of the factor's marginal product equals its price

policymakers can:

use the antitrust laws to try to make the industry more competitive regulate the prices that the monopoly charges turn the monopolist into a government-run enterprise do nothing at all

When labor supply increases, the marginal productivity of workers always increases. profit-maximizing firms reduce employment. wages increase as long as labor supply is upward sloping. wages decrease as long as labor demand is downward sloping.

wages decrease as long as labor demand is downward sloping.