ECON Chapter 14

From the graph, the market power outcome is represented by point _____ while the perfect competition outcome is at point _____.

A; B

What is collusion?

Agreements between sellers to increase their market power

Based on the demand curves for four sellers, which of the following sellers has the most market power?

Firm C

_____ using specific business practices that increase a seller's market power and excludes other sellers is illegal under U.S. law.

Monopolizing

In which market structure do the actions of a rival have a significant impact on your operations?

Oligopoly

Which of the following markets is an example of a perfectly competitive market?

Shares of McDonald's stock

How would the discount effect on marginal revenue differ for a seller increasing sales from 100 units to 101 units compared to an increase in sales from 1,000 units to 1,001 units?

The discount effect would be smaller for a change from 100 to 101 units than 1,000 to 1,001 units.

Patents on drugs to treat AIDS were removed in South Africa. How would the market for these drugs have been different if there had never been patents on drugs?

The drugs would not have been developed.

If a natural monopoly operates at a loss, as may happen after a price ceiling is imposed, it may exit the industry. What does the government do to prevent the exit of natural monopolies that provide an essential service like water or electricity?

The government provides services directly.

If you own one of four gas stations at a busy intersection, what gas price can you set so that you will not lose your customers to the other three rivals?

The market price

A market with a large number of sellers and a high level of product differentiation is known as

a monopolistically competitive market.

Walmart has a large aisle that displays many different kinds of toothpastes. This observation indicates that the toothpaste market is

a monopolistically competitive market.

Price ceilings tend to create shortages when used to

bring down price in a competitive market.

Sellers can set their price by looking at the _____ curve.

demand

Which list correctly ranks firms from least market power to most market power?

farmer, computer manufacturer, airplane manufacturer

Although a single company dominates the zipper market, its customers could always use button flies for their clothes. This means that the company:

has competitors in the broader market for fasteners.

The demand for an AIDS drug is _____, because people living with AIDS will not forgo a lifesaving treatment just because of a price increase.

inelastic

If you can create a product that is very different from those of your rivals, you can raise your price because:

is: customers are less likely to find a substitute product.

The initial AIDS drug market is a real example of how businesses with _____ market power can _____ market forces.

large; distort

The larger the quantity you sell, the _____ the discount effect. Therefore, the marginal revenue curve declines _____ sharply than the firm's demand curve.

larger; more

The higher the level of market power among the sellers in a market, the _____ when the Rational Rule for Sellers is applied.

lower the market output

According to the Rational Rule for Sellers, a seller should choose the output level where _____ and the price level _____.

marginal cost equals marginal revenue; that is on the seller's demand curve at that output level

The government grants patents for firms as an incentive for innovation. However, it also comes with a cost to society because patents create _____ for the firms granted them.

market power

Previously, the price of AIDS drugs was very high, and millions of AIDS victims in sub-Saharan Africa were unable to afford the drug. For the drug companies, this meant large profits selling the drug to people who could pay. This situation happens because of:

market power.

When a company has market power, it is _____ in its market.

not a price-taker

What type of relationship exists between the level of a company's market power and the price that its owner is able to charge for its product?

positive

When buyers in a market have market power, then the

product price is lower.

According to the rational rule, what output and price should the firm in the following example choose?

quantity = 4; price = $7.00

A firm can estimate its firm demand curve by collecting its sale data and then using the data to plot the _____ at each price.

quantity demanded

A paper company experimented by charging different prices for a ream at different locations. The first store set a price of $3.99 and sold 547 units. The other two stores sold 438 units at a price of $4.99, and 219 units at a price of $5.99. The results of this experiment can be depicted in a graph that reveals:

the firm demand curve.

According to the Rational Rule for Sellers, the manager of this company should choose to produce _____ of output and charge a price of _____.

two units; $450

One of the market failures caused by market power is

underproduction.

To avoid harm to society, the government often becomes the supplier of a good or service when the respective market

would be a natural monopoly, and the good or service is considered essential.

Elias works at an ice cream stand. He collects data on his firm's demand as shown in the table. What is the total revenue earned per hour when selling four ice cream cones per hour?

$16

Which of the following is a characteristic of monopoly that is not present in other market structures?

There is only one seller.

Which statement is NOT true about oligopolistic businesses?

They have market power very similar to a monopolist's.

Imperfect competition includes:

monopolistic competition and oligopoly

Based on the table, what price should you charge to get the highest profit?

$13