ECON Midterm 3

A monopolistically competitive industry has:

many firms producing differentiated products.

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

may not affect output or price.

Oligopolistic firms:

may seek to drive competitors out of business for personal reasons, even at great expense.

Monopolies that exist because economies of scale create a barrier to entry are called:

natural monopolies.

The cartel model of oligopoly assumes that:

oligopolies act as if they are monopolists by assigning output quotas to each member so that joint profits are maximized.

A market structure in which there are a few interdependent firms is called:

oligopoly.

Natural monopoly exists when:

one firm can supply the entire quantity demanded at lower cost than two or more firms.

Monopoly is a market structure in which:

one firm makes up the entire market

Charging different prices to different individuals or groups for the same product is called:

price discrimination.

Suppose a monopolist is at the profit-maximizing output level. If the monopolist sells another unit of output:

producer surplus falls but consumer surplus rises.

A firm could be guilty of antitrust violations using the judgment by structure criteria despite:

producing the best product it could at the lowest possible cost.

Barriers to entry:

restrict the number of firms in an industry.

Taking explicit account of a rival's expected response to a decision you are making is called:

strategic decision making.

The reason a profit-maximizing natural monopolist cannot set price equal to marginal cost is that it would:

suffer losses since price would be less than average cost.

A purpose of advertising is to make the:

demand for one's product more inelastic.

Price exceeds marginal cost for a monopolistically competitive firm in long-run equilibrium because:

demand is not perfectly elastic.

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.

If MR > MC, a monopolist should:

increase production

The central characteristic of oligopolistic industries is:

interdependent pricing decisions.

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.

Compared with a normal monopolist, an effective price-discriminating monopolist produces a:

larger output at a larger profit.

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

limit output.

Which of the following statements for a monopolistic competitor in long-run equilibrium is true?

(P = ATC) > (MC = MR).

If a monopolist had no production costs, it would produce the output where marginal revenue intersects the quantity axis. At this point, the price elasticity of demand would be:

1

For a natural monopoly:

ATC > MC.

In which of the following models of firm behavior do firms make strategic pricing decisions and also charge a perfectly competitive price?

Contestable market model of oligopoly

Suppose the market demand curve for a monopolist is given by P = 50 - 10Q. Then the marginal revenue curve is given by:

MR = 50 - 20Q

The price at which a monopolistic competitor sells its product in both the long run and the short run is equal to:

average revenue.

Strategic decision making is most likely to occur in which market structure?

Oligopoly

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

Oligopoly

For a monopolistic competitor:

P = ATC in long-run equilibrium.

A cartel is:

a group of firms that collude to maximize group profits.

A monopoly firm is different from a competitive firm in that:

a monopolist can influence market price whereas a competitive firm cannot.

The demand curve for a monopolist differs from the demand curve faced by a competitive firm because the demand curve for:

a monopolist is the market demand curve.

A market structure in which one firm makes up the entire market is:

a monopoly.

Firms base decisions on the decisions of other firms in the market in:

an oligopolistic industry.

Several firms are operating in a market where they take the other firms' response to their actions into account. This market is:

an oligopolistic market.

A market has the following characteristics: There is strategic decision making, output is somewhat restricted, there are few firms, and some long-run economic profits are possible. This market is:

an oligopoly.

A market has the following characteristics: There is strategic pricing, output is somewhat restricted, there is interdependent decision making, and some long-run economic profits are possible. This market is:

an oligopoly.

The price a monopolist sets is equal to:

average revenue

Refer to the graph shown. If this monopolist produces 45 units of output per day, it will:

be able to increase profit by producing less per day.

Suppose a monopolist is at the profit-maximizing output level. If the monopolist reduces output:

both producer surplus and consumer surplus decrease.

A monopolist:

can earn profits or incur losses in the short run.

Cartels are organizations that:

coordinate the output and pricing decisions of a group of firms

If MR < MC, a monopolist should:

decrease production

Refer to the graph shown. If the monopolist produces at the output level at which price equals marginal cost, it will:

earn positive profits but not maximum profits.

For a cartel to be successful in increasing economic profits for its members:

entry of new firms must be blocked.

The price at which a monopolistically competitive firm sells its product:

exceeds the marginal cost of production.

For a monopolist, the price of the product:

exceeds the marginal revenue.

A natural monopoly occurs when a monopoly:

exists because significant economies of scale are present

Under monopolistic competition, there are:

few barriers to entry.

Oligopoly is characterized by:

few sellers

When a monopolistically competitive industry is in long-run equilibrium:

firms earn zero economic profits.

In a monopolistically competitive market:

firms produce differentiated products.

In the case of a natural monopoly, as the number of firms in the industry increases, the average cost of producing a:

fixed number of units increases.

Network externalities exist when:

the greater use of a product increases the benefit of that product to everyone.

If a monopolist produces beyond the quantity where MC = MR:

the increase in revenue is less than the increase in cost.

According to the kinked demand curve theory of sticky prices, in an oligopolistic market:

the kinked demand curve is elastic in the upper portion and inelastic in the lower portion of the curve.

Because a monopolistic competitor has some monopoly power, advertising to increase that monopoly power makes sense as long as:

the marginal benefit of advertising exceeds the marginal cost of advertising.

Under oligopoly:

there are only a few sellers in the industry.