Exam 3 Ch.14, 15, 16, 17

The figure above shows a firm operating in a monopolistically competitive market. To maximize profit, the firm produces A) 80 units sold at $80 per unit and incurs an economic loss of $20 per unit. B) 100 units sold at $60 per unit. C) 80 units sold at $40 per unit and makes an economic profit of $60 per unit. D) 120 units in order to minimize cost

A) 80 units sold at $80 per unit and incurs an economic loss of $20 per unit.

Use the figure above to answer this question. If a monopoly maximized profit, A) 800 units will be produced and a deadweight loss equal to area ABC will occur. B) 1,000 units will be produced and a deadweight loss equal to area ABC will occur. C) 1,000 units will be produced and there is no deadweight loss. D) 800 units will be produced and a deadweight loss equal to area EFB will occur

A) 800 units will be produced and a deadweight loss equal to area ABC will occur.

How does the demand for any one seller's product in perfect competition compare to the market demand for that product? A) The demand for any one seller's product is perfectly elastic while the market demand curve is downward sloping. B) The demand for any one seller is proportionally smaller but otherwise identical to the market demand. C) They are identical. D) There is no demand for any one seller's competitively sold product.

A) The demand for any one seller's product is perfectly elastic while the market demand curve is downward sloping

A monopolist can make an economic profit in the long run because of A) barriers to entry. B) the relatively inelastic demand for its product. C) the firm's price setting behavior. D) the relatively elastic demand for its product

A) barriers to entry.

We know that a perfectly competitive firm is a price taker because A) its demand curve is horizontal. B) its ATC curve is U-shaped. C) its MC curve slopes upward. D) MC and ATC are equal at the profit-maximizing amount of output

A) its demand curve is horizontal.

If a monopolistically competitive seller's marginal cost is $3.56, the firm will decrease its output if A) its marginal revenue is less than $3.56. B) its marginal revenue is equal to $3.56. C) its marginal revenue is more than $3.56. D) its average total cost is equal to $4.00.

A) its marginal revenue is less than $3.56.

The figure above shows Firm X, a firm that is maximizing profit. The firm is making an economic ________ because it produces ________ units and charges ________ per unit. A) loss; 100; $20 B) profit; 100; $10 C) profit; 100; $30 D) loss; 120; $28

A) loss; 100; $20

If two duopolists can stick to a cartel agreement to boost their prices, then both A) make greater economic profits than if they did not collude. B) price at marginal cost. C) price below average total cost. D) decrease their economic profits.

A) make greater economic profits than if they did not collude.

Suppose that marginal revenue for perfectly competitive firm is $20. When the firm produces 10 units, its marginal cost (MC) is $20, its average total cost (ACT) is $22, and its average variable cost (ACT) is $17. Then to maximize its profit in the short-run the firm A) should stay open and incur an economic loss of $20. B) must increase its output to increase its profit. C) must decrease its output to increase its profit. D) should shut down

A) should stay open and incur an economic loss of $20

An example of a firm in monopolistic competition is A) the many Chinese restaurants in San Francisco. B) the sole cable television company. C) your local water company. D) Kansas Power and Light, the sole provider of electricity in Kansas City

A) the many Chinese restaurants in San Francisco.

The relationship between marginal revenue and elasticity is A) when demand is elastic, marginal revenue is positive and when demand is inelastic, marginal revenue is negative. B) whenever the elasticity is positive, marginal revenue is positive. C) whenever the elasticity is negative, marginal revenue is positive. D) when demand is elastic, marginal revenue is negative and when demand is inelastic, marginal revenue is positive.

A) when demand is elastic, marginal revenue is positive and when demand is inelastic, marginal revenue is negative.

Use the figure above to answer this question. If the firm produces _____________ units, total cost will equal _____________ A) 1,200; $12,000 B) 1,200; $8,400 C) 1,200; $3,600 D) 1,000; $10,000 1200 x 7= TC

B) 1,200; $8,400

For a firm in monopolistic competition, the efficient scale is the amount of output at which ________ is a minimum. A) fixed cost B) average total cost C) average variable cost D) average fixed cost

B) average total cost

In the long run, firms in perfectly competitive market produce at a level that is ________ the efficient scale of output. A) less than B) equal to C) more than D) not comparable to

B) equal to

Consider a perfectly competitive market that was in a long-run equilibrium when a permanent increase in demand occurs. Which of the following will occur as a result? i. The existing firms will start to earn an economic profit. ii. New firms will be motivated to enter the market. iii. Some firms that cannot meet the new demand will exit the market A) i, ii and iii B) i and ii only C) ii and iii only D) iii only

B) i and ii only

Price discrimination occurs when a firm A) charges customers different prices for different goods. B) is able to sell different units of a good at different prices. C) charges customers the same price for different goods. D) can determine which of the many market equilibrium prices it will charge.

B) is able to sell different units of a good at different prices

When a firm is able to engage in perfect price discrimination, its marginal revenue curve A) lies below its demand curve. B) is the same as its demand curve. C) lies above its demand curve. D) is the same as its supply curve.

B) is the same as its demand curve.

Even though four firms can profitably sell hotdogs downtown, the government licenses only two firms. This market is a A) natural duopoly. B) legal duopoly. C) natural monopoly. D) legal monopoly.

B) legal duopoly.

The focus of antitrust legislation is to A) encourage cartels to form because they are easier to regulate. B) maintain competition. C) force society to act in the best interest of producers. D) limit the power of regulatory bodies.

B) maintain competition.

The graph shows that ____________ can meet the market demand at a cost of _____________ per unit when ___________ million units are produced A) one firm; 20 cents; 5 B) one firm; 10 cents; 5 C) 3 firms; 10 cents; 5 D) 5 firms; 10 cents; 1

B) one firm; 10 cents; 5

Economists use game theory to analyze strategic behavior, which takes into account A) monopoly situations. B) the expected behavior of others and the recognition of mutual interdependence. C) the price-taking behavior of oligopolists D) non-price competition.

B) the expected behavior of others and the recognition of mutual interdependence.

Suppose Intel and AMD can each charge either $300 or $200 for a CPU (the computing unit of a computer). The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. If Intel charges $300 and AMD charges $300, then Intel's profit will be ________ million and AMD's profit will be ________ million. A) $500; $100 B) $200; $180 C) $320; $160 D) $450; $220

C) $320; $160

Suppose Intel and AMD can each charge either $300 or $200 for a CPU (the computing unit of a computer). The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. If Intel charges $200 and AMD charges $300, then Intel's profit will be ________ million and AMD's profit will be ________ million. A) $200; $180 B) $320; $160 C) $500; $100 D) $450; $220

C) $500; $100

A cartel is A) a market structure with a small number of large firms. B) a market structure with a large number of small firms. C) a group of firms acting together to raise price, decrease output, and increase economic profit. D) a market with only two firms.

C) a group of firms acting together to raise price, decrease output, and increase economic profit.

If a firm, Best Computer Buys, requires its customers to buy software from it whenever the customers purchase a computer, the company's policy is called A) an exclusive deal. B) a territorial confinement. C) a tying arrangement. D) pricing discrimination.

C) a tying arrangement.

Because of the number of firms in monopolistic competition, A) each firm has a large market share B) it is possible for the firms to collude. C) no one firm can dominate the market. D) one firm has the ability to dictate market conditions.

C) no one firm can dominate the market.

15) Bill owns a lawn-care company in Windermere, Florida, Florida, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. If Bill's average total cost curve is ATC, his total economic ________ equals ________. A) loss; $800 per week B) profit; $1,280 per week C) profit; $480 per week D) loss; $1,280 per week Economic profit=TR-TC =32*40-20*40=(32-20)*40=480 per week

C) profit; $480 per week

Product differentiation allows a firm to compete with another firm on the basis of A) efficiency. B) elasticity. C) quality, price, and marketing. D) the level of output and the price.

C) quality, price, and marketing.

The table above gives the demand for monopolist's output. What is the marginal revenue when output is increased from 5 to 6 units? A)- $18 B)- $4 C) -$2 D) -$3 5 units x $4= 20 6 units x $3= 18

D) -$2

In a perfect competitive market, one farmers' barley is A) completely different from another farmer's barley. B) a monopolized product in that farmer's local market. C) a monopolized product in the national market. D) a perfect substitute for another farmer's barley.

D) A perfect substitute for another farmer's barley

When a monopolistically competitive firm's demand curve shifts leftward, what happens to its marginal revenue curve? A) Nothing, the marginal revenue curve is unchanged. B) It disappears. C) It shifts rightward. D) It shifts leftward.

D) It shifts leftward.

The graph shows the market for the two zipline firms that operate in a resort city. If the firms decide to ________, they will ________. A) compete; serve 400 riders together B) compete; serve 200 riders together C) collude; serve 400 riders together D) act like a cartel; be operating illegally

D) act like a cartel; be operating illegally

Use the figure above to answer this question. If the market is operating efficiently, A) 1,000 units will be produced and no deadweight loss will occur. B) 800 units will be produced and profits will be maximized. C) consumers will pay $30 per unit. D) both A and C are correct.

D) both A and C are correct.

A perfectly competitive firm's short-run supply curve is A) horizontal at the market price. B) its total cost curve above the AVC. C) its marginal cost curve below the marginal revenue curve. D) its marginal cost curve above the AVC curve

D) its marginal cost curve above AVC curve

The rutabaga market is perfectly competitive. Research is published claiming that eating rutabaga leads to gaining weight and so the demand for rutabagas permanently decreases. The permanent decrease in demand results in a? A) lower price, economic losses by rutabaga farmers, and entry into the market. B) higher price, economic losses by rutabaga farmers, and exit from the market. C) higher price, economic profits for rutabaga farmers, and entry into the market. D) lower price, economic losses by rutabaga farmers, and exit from the market.

D) lower price, economic losses by rutabaga farmers, and exit from the market.

A perfectly competitive firm maximizes its profit by producing at the point where A) total revenue equals total cost. B) total cost is at its minimum. C) total revenue is equal to marginal revenue. D) marginal revenue is equal to marginal cost.

D) marginal revenue us equal to marginal cost

In an oligopoly, output is A) less than the output in monopoly. B) greater than the output in perfect competition. C) in all circumstances the same as the output in perfect competition. D) somewhere between the output in monopoly and that in perfect competition outcomes

D) somewhere between the output in monopoly and that in perfect competition outcomes

A monopoly produces a product ____________ and there __________ barriers to entry A) identical to its many competitors; are B) with no close substitutes; are no C) identical to its many competitors; are no D) with no close substitutes; are

D) with no close substitutes; are

In a market characterized by oligopoly: a) firms will earn the highest profit when they cooperate and behave like a monopolist b) firms will always collude with each other c) firms will earn lower profits when they collude with each other d) firms will always end up maximizing the total profits that are earned in the market

a) firms will earn the highest profit when they cooperate and behave like a monopolist

A firm's marginal cost has a minimum value of $50, its average variable cost has a minimum value of $80, and its average total cost has a minimum value of $90. Then the firm will shut down once the price of its product falls below a. $80. b. $90. c. $40. d. $50.

a. $80.

An outcome in which all players choose the best strategy they can, given the choices of all other players a. A Nash equilibrium b. Collusion c. Dominant strategy d. Prisoner's dilemma

a. A Nash equilibrium

Excess capacity is a. an example of the inefficiencies of monopolistically competitive markets. b. a short-run problem but not a long-run problem. c. a characteristic of rising average total cost curves. d. Both a and b are correct.

a. an example of the inefficiencies of monopolistically competitive markets.

Patents, copyrights, and trademarks a. are examples of government-created monopolies. b. are examples of subsidies given to the natural monopolist. c. allow their owners to charge lower prices. d. Anti-trust laws.

a. are examples of government-created monopolies.

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

a. both economic profits and economic losses can persist in the long run.

In general, game theory is the study of a. how people behave in strategic situations. b. how people behave when the possible actions of other people are irrelevant. c. oligopolistic markets. d. all types of markets, including competitive markets, monopolistic markets, and oligopolistic markets.

a. how people behave in strategic situations.

In a perfectly competitive market, at the profit-maximizing level of output, a. marginal revenue equals marginal cost. b. marginal revenue equals average variable cost. c. marginal revenue equals average total cost. d. average revenue equals average total cost.

a. marginal revenue equals marginal cost.

The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which a. marginal revenue is equal to marginal cost. b. average total cost is equal to marginal revenue. c. average total cost is equal to price. d. average revenue exceeds average total cost

a. marginal revenue is equal to marginal cost.

Refer to Figure 14-2. If the market price is P1, in the short run the firm will earn a. positive economic profits. b. negative economic profits but will try to remain open. c. negative economic profits and will shut down. d. zero economic profits.

a. positive economic profits.

Refer to Figure 15-7. What is the monopoly price and quantity? a. price = F; quantity = A b. price = G; quantity = B c. price = G; quantity = A d. price = D; quantity = A

a. price = F; quantity = A

Refer to Figure 14-3. If the market price is $10, what is the firm's short-run economic profit? a. $9 b. $15 c. $30 d. $50 =3 x5

b. $15

Refer to Table 17-2. If the market for gasoline in Huntsville is a monopoly, then the profit-maximizing monopolist will charge a price of a. $8 and sell 200 gallons. b. $5 and sell 500 gallons. c. $2 and sell 800 gallons. d. $0 and sell 1,000 gallons.

b. $5 and sell 500 gallons

Refer to Table 17-2. If there are exactly three sellers of gasoline in Huntsville and if they collude, then which of the following outcomes is most likely? a. Each seller will sell 166.67 gallons and charge a price of $1.33. b. Each seller will sell 166.67 gallons and charge a price of $5. c. Each seller will sell 200 gallons and charge a price of $4. d. Each seller will sell 233.33 gallons and charge a price of $5. Solve: 500/3=

b. Each seller will sell 166.67 gallons and charge a price of $5.

Refer to Figure 14-2. Which of the four prices corresponds to a firm earning zero economic profits in the short run? a. P1 b. P2 c. P3 d. P4

b. P2

When consumers are exposed to additional choices that result from the introduction of a new product in monopolistic competitive market, a. their welfare will be lower as a result of their having to make additional choices. b. a product-variety externality is said to occur. c. an advertising externality is said to occur. d. consumers are likely to experience negative consumption externalities

b. a product-variety externality is said to occur.

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

b. average revenue and price are the same.

The prisoners' dilemma provides insights into the a. easiness of maintaining cooperation. b. disadvantages of not having cooperation. c. benefits of government ownership of monopoly. d. ease with which oligopoly firms maintain high prices.

b. disadvantages of not having cooperation.

When a firm's average total cost curve continually declines, the firm is a a. government-created monopoly. b. natural monopoly. c. revenue monopoly. d. All of the above are correct.

b. natural monopoly.

Refer to Figure 15-7. What is the socially efficient price and quantity? a. price = F; quantity = A b. price = G; quantity = B c. price = G; quantity = A d. price = D; quantity = A

b. price = G; quantity = B

In the long run, each firm in a competitive industry earns a. zero accounting profits b. zero economic profits c. positive economic profits d. positive, negative, or zero economic profits.

b. zero economic profits

Business stealing externality occurs in which type of market a. Oligopoly b. Monopoly c. Monopolistic competition d. Perfect competition

c) monopolistic competition

A monopoly firm can sell 150 units of output for $10 per unit. Alternatively, it can sell 151 units of output for $9.95 per unit. The marginal revenue of the 151st unit of output is a. $-2.45. b. $-0.05. c. $2.45. d. $9.95.

c. $2.45.

Which of the following goods are not likely to be sold in monopolistically competitive markets? a. jeans b. books c. Cable service d. clocks

c. Cable service

Refer to Table 17-20. What is Maddie's dominant strategy? a. Maddie has no dominant strategy. b. Maddie should always choose Clean. c. Maddie should always choose Don't Clean. d. Maddie has two dominant strategies, Clean and Don't Clean, depending on the choice Nadia makes.

c. Maddie should always choose Don't Clean.

Refer to Table 17-20. What is Nadia's dominant strategy? a. Nadia has no dominant strategy. b. Nadia should always choose Clean. c. Nadia should always choose Don't Clean. d. Nadia has two dominant strategies, Clean and Don't Clean, depending on the choice Maddie makes.

c. Nadia should always choose Don't Clean.

As a group, oligopolists would always be better off if they would act collectively a. as if they were each seeking to maximize their own individual profits. b. in a manner that would prohibit collusive agreements. c. as a single monopolist. d. as a single perfectly competitive firm.

c. as a single monopolist.

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above a. average fixed cost. b. average variable cost. c. average total cost. d. average revenue.

c. average total cost.

In which of the following markets is economic profit driven to zero in the long run? a. oligopoly b. monopoly c. monopolistic competition d. cartels

c. monopolistic competition

The price effect is smaller when there are a. less firms b. more demand c. more firms d. less demand

c. more firms

Financial aid to college students is an example of a. Consumer welfare. b. deadweight loss. c. price discrimination d. subsidies.

c. price discrimination

Entry into a competitive market by new firms will increase the a. price of the good. b. profits of existing firms. c. supply of the good. d. cost of producing the good

c. supply of the good

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

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

Refer to Table 17-2. What is the socially efficient quantity of gasoline? a. 0 gallons b. 600 gallons c. 900 gallons d. 1,000 gallons

d. 1,000 gallons

Antitrust laws allow the government to a. prevent mergers. b. break up companies. c. promote competition. d. All of the above are correct.

d. All of the above are correct.

Refer to Table 17-20. What is the Nash Equilibrium in this dorm room cleaning game? a. Nadia: Clean; Maddie: Clean b. Nadia: Don't Clean; Maddie: Clean c. Nadia: Clean; Maddie: Don't Clean d. Nadia: Don't Clean; Maddie: Don't Clean

d. Nadia: Don't Clean; Maddie: Don't Clean

The outcome of a colluding oligopoly is a. More efficient than monopoly b. Less efficient than that of monopolist c. More efficient than competitive oligopoly d. Same as monopolist

d. Same as monopolist

Monopolies are socially inefficient because the price they charge is a. equal to demand. b. above demand . c. equal to marginal revenue. d. above marginal cost.

d. above marginal cost.

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

d. cooperation and self interest.

Refer to Figure 15-1. The shape of the average total cost curve in the figure suggests an opportunity for a profit-maximizing monopolist to take advantage of a. increasing marginal cost. b. diseconomies of scale. c. diminishing marginal product. d. economies of scale

d. economies of scale