Econ 121 - Chps 8 and 9

Which of the following firms best fits the definition of a monopoly?

Local electric utility

Which of the following is true under natural monopoly?

Economies of scale exist.

A monopolist earning economic profit in the short run determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?

Raise price and lower output.

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

this producer is losing $2,000 a week.

When the monopolist is maximizing total profit in Exhibit 8-6, the average total cost of producing that output level is:

$8

A monopoly firm can sell its fourth unit of output for a price of $250. To sell more than five units, it must expect to receive a price:

less than $250.

The monopolistic competition market structure is characterized by:

many firms and differentiated products.

Because a monopolistically competitive market is characterized by

many small sellers selling a differentiated product, each seller has some influence over its own price.

Economists do not think price discrimination is unfair because

more buyers are able to purchase the good with price discrimination, some buyers pay a lower price than if there were a single price, and sellers earn higher profit than if there were a single price.

When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:

mutual interdependence.

A market situation where a small number of sellers dominate the entire industry is called:

oligopoly.

A monopolist will maximize profits by:

producing the output where marginal revenue equals marginal cost, just as a perfectly competitive firm will.

Nonprice competition in monopolistically competitive markets results in

rivalry among competing firms based on the characteristics that differentiate their products.

The two tendencies of a firm in a cartel are the incentive to:

cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit.

Some economists argue that monopolistically competitive markets are inefficient because:

firms do not produce the output rate that would minimize their average total cost.

If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 9-2, we would expect that in the long run:

firms in the industry earn zero economic profits.

Both a perfectly competitive firm and a monopolist:

maximize profit by setting marginal cost equal to marginal revenue.

Suppose that a study of changes in admission prices reveals that when the price of admission to the museum increases by 10%, adults reduce their ticket purchases by 10%, senior citizens reduce their ticket purchases by 20%, college students reduce their ticket purchases by 25%, and children reduce their ticket purchases by 30%. If the cost of having a person visit the museum is the same regardless of whether the person is an adult, senior citizen, college student, or child, which of the following pricing schemes is the most likely to be used by the museum and why?

$8 for children, $10 for college students, $12 for senior citizens, and $15 for adults because the museum can earn higher profits by charging the highest price to those with the least elastic demand and the lowest price to those with the most elastic demand.

As presented in Exhibit 9-1, the short-run profit-maximizing output for the monopolistic competitive firm is:

400 units per day

As presented in Exhibit 9-3, the long-run profit-maximizing output for the monopolistic competitive firm is:

400 units per week.

Which of the following does not represent an arbitrage transaction?

A boat manufacturer buys the electrical components for its boats from the lowest cost supplier and then sells the boats to consumers.

Suppose both a monopolist and a perfectly competitive firm are producing in their respective markets at a point where marginal cost is $8 and marginal revenue is $10. What should the profit-maximizing firms do?

Both the monopolist and the perfectly competitive firm should increase output until MC = MR.

Suppose costs are identical for the two firms in Exhibit 9-7. If both firms assume the other will compete and charge a lower price, equilibrium will be established by:

Camel charging the low price and Marlboro charging the low price.

Which of the following statements accurately describes a difference between a firm that is a monopolist and one that is a competitive price taker?

Marginal revenue and market price are equal for the competitive price taker but not for the monopolist.

Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?

Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero.

Which of the following is not true of a monopolistically competitive firm?

The firm will produce an efficient quantity where average total cost is minimized.

At the level of output where the marginal cost and marginal revenue curves intersect, two firms demand curves pass above their average total cost curve. One firms is a monopoly and the other is perfectly competitive. Which statement is true for both firms?

The firms are making an economic profit.

Which of the following distinguishes a natural monopoly from monopoly caused by ownership of a vital resource?

The natural monopoly has a downward-sloping long-run average cost curve as opposed to a U-shaped long-run average cost curve.

Suppose Ford, GM, and Dodge make the majority of pick-up trucks sold in the United States If they all sell for approximately the same price, and Ford offers a $2,000 rebate on new truck sales, what can Ford expect to see?

an immediate response by GM and Dodge

The act of buying a commodity in one market at a lower price and selling it in another market at a higher price is known as:

arbitrage.

Suppose both a monopolist and a perfectly competitive firm charge a price corresponding to the quantity at the intersection of the marginal cost and marginal revenue curves. If this price is between each firm's average variable cost and average total cost curves,

both firms will continue to operate in the short run.

In order to make oil profits as large as possible, OPEC meets to set oil production quotas for its members. OPEC is best classified as a:

cartel.

Suppose a monopolist and a perfectly competitive firm have the same cost curves. The monopolistic firm would:

charge a higher price than the perfectly competitive firm.

Cartel members have an incentive to cheat on the cartel because:

each member's MR is not equal to the cartel's MC.

At any point where a monopolist's marginal revenue is positive, the downward-sloping straight-line demand curve is:

elastic but not perfectly elastic, and a perfectly competitive firm's demand curve is perfectly elastic.

If all firms in the industry are the same as the monopolistic competitive firm shown in this Exhibit 9-1, firms in the long run will:

experience competition from new firms that enter the industry.

Because an oligopoly is characterized by

few large sellers, each seller has some influence over the market price.