econ hw 4-5

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 and unlimited profit. (iv) The firm is located in a small geographic market. a. (i) and (ii) only b. (i) and (iii) only c. (i), (ii), and (iii) only d. (i), (ii), (iii), and (iv)

a. (i) and (ii) only

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 the table above. If both stores follow a dominant strategy, HomeMax's annual profit will grow by... a. $0.6 million. b. $1.5 million. c. $2.5 million. d. $3.4 million.

b. $1.5 million

The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways? a. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost. b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost c. A competitive firm maximizes profit at the point where marginal revenue exceeds marginal cost; a monopolist maximizes profit at the point where marginal revenue equals marginal cost. d. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit- maximizing monopolist.

b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost

Suppose that Bieber and Rihanna are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next? a. Bieber and Rihanna will determine that it is in each singer's self interest to maintain the agreement. b. Bieber and Rihanna will each break the agreement. Both singers' profits will decrease. c. Bieber and Rihanna will each break the agreement. Both singers' profits will increase. d. Bieber and Rihanna will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price also will increase.

b. Bieber and Rihanna will each break the agreement. Both singers' profits will decrease.

An agreement between two duopolists to function as a monopolist usually breaks down because... a. they cannot agree on the price that a monopolist would charge. b. they cannot agree on the output that a monopolist would produce. c. each duopolist wants a larger share of the market to capture more profit. d. each duopolist wants to charge a higher price than the monopoly price.

c. each duopolist wants a larger share of the market to capture more profit.

In a duopoly situation, the logic of self-interest results in a total output level that... a. equals the output level that would prevail in a competitive market. b. equals the output level that would prevail in a monopoly. c. exceeds the monopoly level of output, but falls short of the competitive level of output. d. falls short of the monopoly level of output.

c. exceeds the monopoly level of output, but falls short of the competitive level of output

Which of the following would increase the demand for labor? (i) a decrease in the output price (ii) an increase in the output price (iii) a labor-saving technological advance (iv) a labor-augmenting technological advance a. (i) only b. (i) and (iii) only c. (ii) only d. (ii) and (iv) only

d. (ii) and (iv) only

Granting a pharmaceutical company a patent for a new medicine will lead to (i) a product that is priced higher than it would be without the exclusive rights. (ii) incentives for pharmaceutical companies to invest in research and development. (iii) higher quantities of output than without the patent. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)

a. (i) and (ii) only

Typically, as a firm hires additional workers, the marginal product of labor... a. decreases, and the value of the marginal product of labor decreases. b. stays constant, and the value of the marginal product of labor decreases. c. decreases, and the value of the marginal product of labor stays constant. d. decreases, and the value of the marginal product of labor increases

a. decreases, and the value of the marginal product of labor decreases.

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly... a. is often not in the best interest of society. b. maximizes total economic well-being. c. is efficient. d. benefits consumers more so than the producer.

a. is often not in the best interest of society.

Refer to the figure above. A profit-maximizing monopoly's total revenue is equal to... a. J x Z b. B x T c. K x W d. C x W

c. K x W

Refer to the figure above. Which of the following areas represents the profit earned by this profit-maximizing monopolist? a. BCFE b. ABE c. EFG d. CFIH

a. BCFE

Which of the following statements is correct? a. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit. b. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling fewer units at a higher price per unit. c. When a monopolist produces where price equals the minimum of average total cost, it earns a positive economic profit. d. If the monopolist is earning a positive economic profit, it must be producing where MR=MC.

a. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together... a. they are unable to maintain the same degree of monopoly power enjoyed by a monopolist. b. each firm's profit always ends up being zero. c. society is worse off as a result. d. Both a and c are correct.

a. they are unable to maintain the same degree of monopoly power enjoyed by a monopolist.

Sunshine's Organic Market sells organic produce. Assume that labor is the only input that varies for the firm. The store manager has determined that if she hires 9 workers, the store can sell 200 pounds of produce per day. If she hires 10 workers, the store can sell 230 pounds of produce per day. The store earns $4 for each pound of produce that it sells, and the manager pays each worker $60 per day. Which of the following is correct? a. For the 10th worker, the marginal product is 20 pounds of produce per day. b. For the 10th worker, the marginal revenue product is $120 per day. c. The marginal profit from the 10th worker is $120. d. All of the above are correct.

b. For the 10th worker, the marginal revenue product is $120 per day.

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

b. cooperation and self interest.

A technological advance that increases the marginal product of labor shifts the labor- __________ curve to the __________. a. demand, left b. demand, right c. supply, left d. supply, right

b. demand, right

Monopoly firms have... a. downward-sloping demand curves, so they can sell as much output as they desire at the market price. b. downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve. c. horizontal demand curves, so they can sell as much output as they desire at the market price. d. horizontal demand curves, so they can sell only a limited quantity of output at each price.

b. downward-sloping demand curves, so they can sell only the specific price-quantity

The defining characteristic of a natural monopoly is... a. production requires the use of free natural resources, such as water or air. b. economies of scale over the relevant range of output. c. constant returns to scale over the relevant range of output. d. diseconomies of scale over the relevant range of output.

b. economies of scale over the relevant range of output.

Exclusive ownership of a key resource... a. is the most common cause of a monopoly. b. is a potential but rare cause of a monopoly. c. explains the monopoly ownership of the US Postal Service. d. explains why a single firm distributes water to a community.

b. is a potential but rare cause of a monopoly

A monopolist produces... a. more than the socially efficient quantity of output but at a higher price than in a competitive market b. less 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

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

When a monopoly increases its output and sales... a. both the output effect and the price effect work to increase total revenue. b. the output effect works to increase total revenue, and the price effect works to decrease total revenue. c. the output effect works to decrease total revenue, and the price effect works to increase total revenue. d. both the output effect and the price effect work to decrease total revenue.

b. the output effect works to increase total revenue, and the price effect works to decrease total revenue

To maximize profit, a competitive firm hires workers up to the point of intersection of the... a. marginal product curve and the wage line. b. value of marginal product curve and the wage line. c. value of marginal product curve and the marginal revenue curve. d. total revenue curve and the wage line.

b. value of marginal product curve and the wage line.

We observe a profit-maximizing firm hiring its 75th employee. It is possible to infer that, when 74 employees are hired, the... a. wage exceeds the value of the marginal product of labor. b. value of the marginal product of labor exceeds the wage c. marginal product of labor is increasing. d. firm is attempting to increase its market share.

b. value of the marginal product of labor exceeds the wage

For a monopoly firm, the shape and position of the demand curve play a role in determining the... (i) profit-maximizing price. (ii) shape and position of the marginal-cost curve (iii) shape and position of the marginal-revenue curve. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)

c. (i) and (iii) only

Game theory is necessary to understand which kinds of markets? (i) perfectly competitive (ii) monopolistically competitive (iii) oligopoly (iv) duopoly (v) monopoly a. (i) and (ii) only b. (iii),(iv),and(v)only c. (iii) and (iv) only d. (i),(ii),(iii),(iv),and(v)

c. (iii) and (iv) only

Refer to the figure above. Which of the following areas represents the deadweight loss from this profit-maximizing monopolist? a. ABE b. BCFE c. EFG d. ACG

c. EFG

Which of the following statements is not correct? a. Consumers will likely benefit in the form of lower prices from buying a product made by a natural monopoly than if the market were served by several firms. b. Monopolists typically charge higher prices than competitive firms. c. Monopolists typically produce larger quantities of output than competitive firms. d. Consumers may benefit from monopolies if the firms invest their higher profits into something that benefits society such as medical research

c. Monopolists typically produce larger quantities of output than competitive firms

Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect... a. an increase in market output and an increase in the price of the product. b. an increase in market output and an decrease in the price of the product. c. a decrease in market output and an increase in the price of the product. d. a decrease in market output and a decrease in the price of the product.

c. a decrease in market output and an increase in the price of the product.

Labor markets are different from most other markets because labor demand is... a. unresponsive to changes in wages. b. unresponsive to changes in the final prices of the products produced by the labor. c. a derived demand. d. very responsive to labor supply

c. a derived demand.

A monopoly... a. can set the price it charges for its output and earn unlimited profits. b. takes the market price as given and earns small but positive profits. c. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits. d. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.

c. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

When a firm operates under conditions of monopoly, its price is... a. not constrained. b. constrained by marginal cost. c. constrained by demand. d. constrained only by its social agenda.

c. constrained by demand.

Refer to the figure above. If the monopoly firm is currently producing Q4 units of output, then a(an) _______ in output will necessarily cause profit to _________. a. increase ; increase b. increase; decrease c. decrease ; increase d. decrease; decrease

c. decrease ; increase

Price discrimination... a. forces monopolies to charge a lower price as a result of government regulation. 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. increases the consumer surplus associated with a monopolistic market.

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

For a monopolist, marginal revenue is... a. positive when the demand effect is greater than the supply effect. b. positive when the monopoly effect is greater than the competitive effect. c. negative when the price effect is greater than the output effect. d. negative when the output effect is greater than the price effect

c. negative when the price effect is greater than the output effect

From society's standpoint, cooperation among oligopolists is... a. desirable, because it leads to less conflict among firms and a wider variety of products for consumers. b. desirable, because it leads to an outcome closer to the competitive outcome than what would be observed in the absence of cooperation. c. undesirable, because it leads to output levels that are too low and prices that are too high. d. undesirable, because it leads to output levels that are too high and prices that are too high.

c. undesirable, because it leads to output levels that are too low and prices that are too high.

Suppose that eight workers can manufacture 70 radios per day and that nine workers can manufacture 90 radios per day. If radios can be sold for $20 each, the value of marginal product of the ninth worker is... a. 20 radios. b. 90 radios. c. $200. d. $400.

d. $400

Which of the following statements is correct? a. If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly. b. Although the logic of self-interest decreases a duopoly's price below the monopoly price, it does not push the duopolists to reach the competitive price. c. Although the logic of self-interest increases a duopoly's level of output above the monopoly level, it does not push the duopolists to reach the competitive level. d. All of the above are correct.

d. All of the above are correct.

A storm destroys several factories, thereby reducing the stock of capital. What effect does this event have on factor markets? a. Wages and the rental price of capital both rise. b. Wages and the rental price of capital both fall. c. Wages rise, and the rental price of capital falls. d. Wages fall, and the rental price of capital rises

d. Wages fall, and the rental price of capital rises

Suppose that the market for labor is initially in equilibrium. Suppose that workers' tastes change so that they choose to retire at age 70 rather than age 67. Then the equilibrium wage... a. and the equilibrium quantity of labor will rise. b. and the equilibrium quantity of labor will fall. c. will rise, and the equilibrium quantity of labor will fall. d. will fall, and the equilibrium quantity of labor will rise.

d. will fall, and the equilibrium quantity of labor will rise