ECON 2302_HW 5

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Refer to Figure 15-6. A profit-maximizing monopolist would earn profits of a. $126. b. $96. c. $120. d. $117.

$120

Refer to Figure 15-6. A profit-maximizing monopolist would incur total costs of a. $144. b. $81. c. $120. d. $240.

$120

Refer to Table 17-1. Suppose the town enacts new antitrust laws that prohibit Rochelle and Alec from operating as a monopoly. What will be the price of water once Rochelle and Alec reach a Nash equilibrium? a. $30 b. $20 c. $15 d. $25

$20

Refer to Figure 15-6. A profit-maximizing monopolist would earn total revenues of a. $240. b. $81. c. $144. d. $225.

$240

Table 17-1 Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, what price will they charge? a. $25 b. $30 c. $35 d. $40

$30

Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how much profit will each of them earn? a. $12,000 b. $18,000 c. $9,000 d. $8,750

$9,000

A firm in a monopolistically competitive market is similar to a monopoly in the sense that (i) they both face downward-sloping demand curves. (ii) they both charge a price that exceeds marginal cost. (iii) free entry and exit determines the long-run equilibrium. a. (ii))only b. (i) only c. (i), (ii), and (iii) only d. (i) and (ii) only

(i) and (ii) only

Which of the following are necessary characteristics of a monopoly? (i) The firm is the sole seller of its product. (ii) The firm's product does not have close substitutes. (iii) The firm generates a large economic profit. (iv) The firm is located in a small geographic market. a. (i), (ii), and (iii) only b. (i) and (ii) only c. (i), (ii), (iii), and (iv) d. (i) and (iii) only

(i) and (ii) only

Refer to Table 17-1. If the market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold? a. 600 b. 1,200 c. 0 d. 900

1,200

Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold? a. 1,200 b. 600 c. 500 d. 0

600

Refer to Table 17-1. Suppose the town enacts new antitrust laws that prohibit Rochelle and Alec from operating as a monopoly. How many gallons of water will be produced and sold once Rochelle and Alec reach a Nash equilibrium? a. 800 b. 900 c. 600 d. 700

800

Which of the following is a commonly-cited benefit of advertising? a. Advertising can be a signal of the quality of a product. b. Advertising impedes competition. c. Advertising reduces the deadweight loss associated with monopolistic competition. d. Advertising encourages free entry, which increases profits.

Advertising can be a signal of the quality of a product

Advertising a. provides information about products, including prices and seller locations. b. has been proven to increase competition and reduce prices compared to markets without advertising. c. signals quality to consumers, because advertising is expensive. d. All of the above are correct.

All of the above are correct

In the prisoners' dilemma game, self-interest leads a. each prisoner to confess. b. to a breakdown of any agreement that the prisoners might have made before being questioned. c. to an outcome that is not particularly good for either prisoner. d. All of the above are correct.

All of the above are correct

Refer to Figure 15-3. Profit will be maximized by charging a price equal to a. P4. b. P3. c. P2. d. P1.

P4

Refer to Figure 15-3. A profit-maximizing monopoly's total revenue is equal to a. P3 x Q4. b. (P4-P2) x Q2. c. (P4-P3) x Q2. d. P4 x Q2.

P4 x Q2

Refer to Figure 15-3. If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to a. Q1. b. Q2. c. Q4. d. Q3.

Q2

The legislation passed by Congress in 1890 to reduce the market power of large and powerful "trusts" was the a. 14th Amendment. b. Clayton Act. c. Sherman Act. d. Morgan Act.

Sherman Act

The fundamental source of monopoly power is a. profit. b. decreasing average total cost. c. barriers to entry. d. a product without close substitutes.

barriers to entry

Microsoft faces very little competition from other firms for its Windows software. Why isn't the price of the software $1,000 per copy? a. because the government would not allow such a high price b. because stockholders would not allow such a high price c. because the company would sell so few copies that they would earn higher profits by selling at a lower price d. All of the above are correct.

because the company would sell so few copies that they would earn higher profits by selling at a lower price

The free entry and exit of firms in a monopolistically competitive market guarantees that a. economic losses, but not economic profits, can persist in the long run. b. both economic profits and economic losses can persist in the long run. c. both economic profits and economic losses disappear in the long run. d. economic profits, but not economic losses, can persist in the long run.

both economic profits and economic losses disappear in the long run

Refer to Table 17-13. Increasing the size of its store and parking lot is a dominant strategy for a. neither store. b. HomeMax, but not for Lopes. c. both stores. d. Lopes, but not for HomeMax.

both stores

Monopolies use their market power to a. dump excess supplies of their product on the market. b. increase the quantity sold as they increase price. c. charge prices that equal minimum average total cost. d. charge a price that is higher than marginal cost.

charge a price that is higher than marginal cost

An agreement among firms in a market about quantities to produce or prices to charge is called a. collusion. b. tying. c. a strategic situation. d. excess capacity.

collusion

A distinguishing feature of an oligopolistic industry is the tension between a. producing a small amount of output and charging a price above marginal cost. b. profit maximization and cost minimization. c. cooperation and self interest. d. short-run decisions and long-run decisions.

cooperation and self interest

Because monopolistically competitive firms produce differentiated products, each firm a. has some control over product price. b. has no control over product price. c. faces a demand curve that is vertical. d. faces a demand curve that is horizontal.

has some control over product price

In an oligopoly, each firm knows that its profits a. depend only on how much output it produces. b. depend only on how much output its rival firms produce. c. depend on both how much output it produces and how much output its rival firms produce. d. will be zero in the long run because of free entry.

depend on both how much output it produces and how much output its rival firms produce

A firm in a monopolistically competitive market faces a a. downward-sloping demand curve because there are only a few firms in the market. b. horizontal demand curve because firms can enter the market without restriction. c. downward-sloping demand curve because the firm's product is different from those offered by other firms. d. horizontal demand curve because there are many firms in the market.

downward-sloping demand curve because the firm's product is different from those offered by other firms

If the government regulates the price that a natural monopolist can charge to be equal to the firm's marginal cost, the firm will a. earn positive profits, causing other firms to enter the industry. b. earn zero profits. c. minimize costs in order to lower the price that it charges. d. earn negative profits, causing the firm to exit the industry.

earn negative profits, causing the firm to exit the industry

If the government regulates the price that a natural monopolist can charge to be equal to the firm's average total cost, the firm will a. earn zero profits. b. earn negative profits, causing the firm to exit the industry. c. minimize costs in order to lower the price that it charges. d. earn positive profits, causing other firms to enter the industry.

earn zero profits

A monopolist's profits with price discrimination will be a. the same as if the firm charged a single, profit-maximizing price. b. higher than if the firm charged a single price because the costs of selling the good will be lower. c. higher than if the firm charged just one price because the firm will capture more consumer surplus. d. lower than if the firm charged a single, profit-maximizing price

higher than if the firm charged just one price because the firm will capture more consumer surplus

Table 17-13 Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits of the two home-improvement stores are shown in the table below. Refer to Table 17-13. Pursuing its own best interest, Lopes will a. increase the size of its store and parking lot only if HomeMax does not increase the size of its store and parking lot. b. increase the size of its store and parking lot only if HomeMax also increases the size of its store and parking lot. c. increase the size of its store and parking lot regardless of the decision made by HomeMax. d. not increase the size of its store and parking lot regardless of the decision made by HomeMax.

increase the size of its store and parking lot regardless of the decision made by HomeMax

Refer to Table 17-13. Pursuing its own best interest, HomeMax will a. increase the size of its store and parking lot only if Lopes does not increase the size of its store and parking lot. b. increase the size of its store and parking lot regardless of the decision made by Lopes. c. increase the size of its store and parking lot only if Lopes also increases the size of its store and parking lot. d. not increase the size of its store and parking lot regardless of the decision made by Lopes.

increase the size of its store and parking lot regardless of the decision made by Lopes

Price discrimination a. increases the consumer surplus associated with a monopolistic market. b. is an attempt by a monopoly to prevent some customers from purchasing its product by charging a high price. c. is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices. d. forces monopolies to charge a lower price as a result of government regulation.

is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity, a. its demand curve will be tangent to its average total cost curve. b. it will be earning positive economic profits. c. its marginal revenue will exceed its marginal cost. d. its average revenue will equal its marginal cost.

its demand curve will be tangent to its average total cost curve

A monopolist produces a. less than the socially efficient quantity of output but at a higher price than in a competitive market. b. more than the socially efficient quantity of output but at a higher price than in a competitive market. c. the socially efficient quantity of output but at a higher price than in a competitive market. d. possibly more or possibly less than the socially efficient quantity of output, but definitely at a higher price than in a competitive market.

less than the socially efficient quantity of output but at a higher price than in a competitive market

In order to sell more of its product, a monopolist must a. lower its price. b. sell to the government. c. use its market power to force up the price of complementary products. d. sell in international markets.

lower its price

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

many firms, differentiated products, and free entry

In which of the following product markets are we likely to observe the largest amount of advertising? a. markets in which there is very little difference between different firms' products b. perfectly competitive markets c. markets in which industrial products are sold d. markets with highly differentiated products

markets with highly differentiated products

The two types of imperfectly competitive markets are a. oligopoly and monopoly. b. markets with differentiated products and monopoly. c. markets with differentiated products and oligopoly. d. monopolistic competition and oligopoly.

monopolistic competition and oligopoly

Game theory is important for the understanding of a. all market structures. b. competitive markets. c. monopolies. d. oligopolies.

oligopolies

Refer to Figure 16-4. Which of the graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry? a. panel c b. panel a c. panel d d. panel b

panel a

Refer to Figure 16-4. Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry? a. panel c b. panel a c. panel d d. panel b

panel c

Refer to Figure 16-5. Which of the graphs shown would be consistent with a profit maximizing firm in a monopolistically competitive market that is earning a positive profit? a. panel c b. panel b c. panel d d. panel a

panel c

When a local grocery store offers discount coupons in the Sunday paper it is most likely trying to a. encourage arbitrage. b. encourage literacy. c. price discriminate. d. reduce prices for all customers.

price discriminate

For a monopolistically competitive firm, at the profit-maximizing quantity of output, a. marginal cost exceeds average revenue. b. price exceeds marginal cost. c. price equals marginal revenue. d. marginal revenue exceeds marginal cost.

price exceeds marginal cost

The prisoners' dilemma game a. provides insight into why cooperation is difficult. b. provides insight into why cooperation is individually rational. c. is a game in which exactly one of the two players has a dominant strategy. d. is a game in which neither player has a dominant strategy.

provides insight into why cooperation is difficult

A firm can signal the high quality of its product by a. not worrying about getting a patent for the product. b. spending nothing on advertising to convey that the product is so good that the firm does not even need to advertise. c. getting a patent for the product. d. spending a large amount of money on advertising.

spending a large amount of money on advertising

In monopolistically competitive markets, positive economic profits a. suggest that some existing firms will exit the market. b. are sustained through government-imposed barriers to entry. c. are never possible. d. suggest that new firms will enter the market.

suggest that new firms will enter the market

In a game, a dominant strategy is a. a strategy that leads to one player's interests dominating the interests of the other players. b. the best strategy for a player to follow only if other players are cooperative. c. a strategy that must appear in every game. d. the best strategy for a player to follow, regardless of the strategies followed by other players.

the best strategy for a player to follow, regardless of the strategies followed by other players

A monopolistically competitive firm chooses a. the price, but competition in the market determines the quantity. b. the quantity of output to produce, but the market determines price. c. the quantity of output to produce and the price at which it will sell its output. d. price, but output is determined by a cartel production quota.

the quantity of output to produce and the price at which it will sell its output

Many movie theaters allow discount tickets to be sold to senior citizens because a. the theaters are profit maximizers. b. goodwill efforts earn community respect and win loyal patrons. c. senior citizens lobby city councils for lower prices. d. senior-citizen laws mandate such discounts.

the theaters are profit maximizers


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