Microeconomics Review-Oligarchy

A major distinction between a monopolistically competitive firm and an oligopolistic firm is that

A recognized interdependence exists between firms in one industry but not in the other

Mutual interdependence means that each firm in an oligopoly

Considers the reactions of its rivals when it determines its pricing policy

Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will

Decide to increase advertising expenditures even if it means a reduction in profits

You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that

The four largest firms account for 20 percent of industry sales

Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that:

The industry is less concentrated than suggested by domestic concentration ratios

Which of the following factors most likely would explain why a U.S. company would choose to operate in the United States despite much lower wages in Mexico?

The lower productivity of Mexican workers

Under monopolistic competition, a firm's ability to influence the price of the product it sells arises because

The product of each seller is differentiated from that of others

The opportunity cost of leisure

increases as wages get higher.

If a monopolistically competitive firm is earning economic profits in the short-run, then

These profits will be eliminated in the long-run as new firms enter the industry.

Mergers of firms in an industry tend to

Transform monopolistic competition into oligopoly

A firm in a cartel typically cheats on its collusive agreement by raising its price and restricting output more than it agreed to with other cartel members

True

A game in which one firm's gain must equal the other firm's loss is called a

Zero-sum game

If a market with monopolistic competition became a monopoly market, output would

fall

Which constitutes an obstacle to collusion among oligopolists?

A large number of firms

Which cannot be a characteristic of an oligopolistic industry

A perfectly elastic firm demand curve

In competing with rivals, oligopolistic firms will tend to use

Advertising because it is less easily duplicated than price cuts

Collusion refers to a situation where rival firms decide to

Agree with each other to set prices and output

A monopsonist facing many suppliers of labor will employ

fewer workers than a firm operating in a perfectly competitive labor market

When a monopolistically competitive industry is in long-run equilibrium

firms earn zero economic profits

In the market for bank credit a large bank sometimes announces a change in interest rates. After the changes in interest rates are announced, other banks in the industry usually react by changing their rates in the same way. This is an example of:

implicit collusion.

A reduction in the supply of labor will cause wages to

increase and employment to decrease

The central characteristic of oligopolistic industries is

interdependent pricing decisions.

A monopsonist will pay a wage that

is less than that in a perfectly competitive labor market

Suppose that the men's suit business is monopolistically competitive. It follows that in equilibrium, the marginal revenue of any firm in the industry

is less than the price

A monopolistically competitive firm faces a downward-sloping demand curve

True

Brand names and packaging are forms of product differentiation under monopolistic competition

True

Efficiency wages are above-market wages that are paid to workers to keep them productive

True

Game-theory model analyzes the interdependence of oligopolists' strategies

True

If an oligopolist's competitors follow its price cuts but ignore its price increases, the oligopolist would end up holding its price constant even if its marginal cost changes

True

Monopolistically competitive firms have some control over the price of their products

True

That one thing that monopolistic competition provides, which is not assured in the other market structures, is product variety.

True

The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve

True

The demand for labor is derived from the demand for output

True

Mutual interdependence means that

A firm's behavior is affected by other firms' actions

Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is

2150

Industry Y is dominated by five large firms that hold market shares of 20, 25, 15, 10, and 25 percent. The four-firm concentration ratio for this industry is

85 percent

Collusion among oligopolistic firms

Becomes more difficult if the firms all have different cost and demand curves

A firm in an oligopoly is similar to a monopoly in that

Both firms could have significant market power and control over price

If an oligopolist's demand curve has a "kink" in it, then over some interval

Changes in marginal cost will not cause a change in the profit-maximizing price

If the demand for legal services decreases, the demand for legal assistants probably will

Decrease

The Organization of Petroleum Exporting Countries (OPEC) is an international cartel. If the cartel were to hire a consulting firm to monitor the production rates of member countries, the economic reason for this monitoring is to

Detect those member countries which are depressing prices by producing more than their assigned quotas

The consumer wifi-service providers' market is best described as a:

Differentiated oligopoly

A low concentration ratio means that

Each firm accounts for a small market share of the industry

A homogeneous oligopoly means that the few firms in the industry have identical cost and demand curves

False

If the representative firm in a monopolistically competitive industry has an optimal output where P < ATC, the industry will expand in the long run

False

OPEC functions as a classic example of a kinked demand curve oligopoly

False

Prices in oligopolistic industries are predicted to fluctuate widely and frequently compared to other market structures.

False

Significant barriers to entry exist in a monopolistically competitive industry

False

The supply of labor generally is considered to be downward-sloping because the opportunity cost of leisure decreases as wages increase

False

When a monopolistically competitive firm is in long-run equilibrium, average total cost is at its minimum

False

A market in which a single firm hires labor but workers compete against one another for jobs is a bilateral monopoly

False A bilateral monopoly exists when there is one seller and one buyer in a market

Under monopolistic competition, there are:

Few barriers to entry

A high concentration ratio indicates that

Few firms produce most of the output in an industry

The price at which a monopolistically competitive firm sells its product

exceeds the marginal cost of production

One shortcoming of the kinked demand curve model of oligopoly is that it does not explain

How the current price gets determined

Interindustry competition refers to the fact that

In some markets the producers of a certain commodity might face competition from products of other industries

The labor supply curve is generally considered to be upward-sloping because the opportunity cost of leisure

Increases as wages get higher

The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of

Interindustry competition

Which statement concerning the kinked demand curve model of oligopoly is false?

It assumes when one oligopolist raises the price, all others will follow

The Herfindahl index is a measure of:

Market power in an industry

A unique feature of an oligopolistic industry is

Mutual interdependence

In the kinked demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to

Not change their prices

The tablet-computer market is best characterized as a(n):

Oligarchy

Which of the following market structures does not have predictable price and output decisions at which the firms will rationally arrive?

Oligarchy

In which set of market models are there the most significant barriers to entry?

Oligopoly and pure monopoly

For a monopolistic competitor:

P = ATC in long-run equilibrium.

For a monopolistic competitor

P>MR

A major prediction of the kinked demand curve model is

Price stability in oligopolies

Which statement about oligopoly is false?

Prices in oligopoly are predicted to fluctuate widely and frequently

The kinked demand model of oligopoly assumes that

Rivals will ignore price increases but will match price cuts

Informal collusion to restrict output and increase prices is sometimes referred to as a

Tacit understanding

Under monopolistic competition, a long-run equilibrium exists when price equals

average total cost.

If robotics and factory automation become more widespread in an industry and all else is held constant

both the demand for labor in that industry and the wage rate should decrease

The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a

downward-sloping demand curve and price exceeds marginal cost in equilibrium

When IBM sold its personal computer business to Lenovo, one analyst remarked that the PC business was "a corner of the technology market where few companies have been able to generate consistent profits." This low-profit result would be expected if the PC business

is monopolistically competitive

Suppose an oligopolistic firm assumes that its rivals will ignore a price increase but match a price cut. In this case, the firm perceives its demand curve to be

kinked, being steeper below the going price than above

To be successful in increasing prices for their product, members of a cartel

limit output.

Monopolistic competition is similar to perfect competition in that

long-run profits tend to zero in both

Researchers have found that the income of obese women is about 17 percent lower than that of women who are of the recommended weight when both sets of women are equally productive. This result implies that there:

may be discrimination on the basis of "beauty."

If a profit-maximizing oligopolist has a kinked demand curve, then a downward shift in its marginal cost curve

might not affect output or price.

There are many restaurants in the city of Raleigh, each one offering food and services that differ from those of its competitors. There is also free entry of sellers into the market, and each seller serves a very small fraction of the total number of meals served each day. The restaurant industry in Raleigh is best categorized as:

monopolistically competitive.

Other things held constant in a competitive labor market, if workers negotiate a contract in which the employer agrees to pay an hourly wage rate of $17.85 while the market equilibrium hourly wage rate is $16.50, the

quantity of workers supplied will exceed the quantity of workers demanded

Recently, Wendy's fast-food restaurant began to offer fruit or salad as a substitute for French fries in its value meals. It made sense for Wendy's to advertise this fact as long as doing so

raised revenue by more than it raises the cost of advertising

If a monopolistically competitive market became perfectly competitive, output would likely

rise

If the market for tires is monopolistically competitive, then

sellers can influence the market price of the product

If the fast-food industry is monopolistically competitive, then a profit-maximizing firm in this industry sells its product at a price

so that marginal revenue and marginal cost are equal.

The difference between a monopolist and a monopolistic competitor is that

the average total cost curve of a monopolistic competitor is tangent to the demand curve in long-run equilibrium, but the average total cost curve of a monopolist can be in a position below the price in long-run equilibrium.

As firms leave a monopolistically competitive industry that is sustaining economic losses

the demand curves facing the remaining firms in the industry shifts to the right

The demand for labor is a derived demand because

the demand for labor comes from the demand for output

The larger the Herfindahl index

the greater the degree of market power in an industry

Under oligopoly

there are only a few sellers in the industry

According to economist Colin Camerer of the California Institute of Technology, many New York taxi drivers decide when to finish work by setting an income goal for themselves. If this is true, on busy days when the effective hourly wage is higher, tax drivers will:

work fewer hours than they will on slower days.