Iowa State Econ 101 Sample Test 4

Suppose the HHI in the market for is 3,200 points. Two companies want to merge. The FTC definitely will challenge the merger if it increases the HHI by more than A. 200 points B. 100 points C. 40 points D. 150 points

A. 200 points

A tit-for-tat strategy can be used in A. a single-play game but not a repeated game B. a single-play game or a repeated game C. neither a repeated game nor a single-play game D. a repeated game but not a single-play game

D. a repeated game but not a single-play game

Game theory is used to explain firms' decisions in A. a monopolistically competitive market B. a monopoly C. a perfectly competitive market D. an oligopoly

D. an oligopoly

A contestable market is one in which A. will be no entry if the existing firm earns an economic profit B. can be only one firm in the market C. are barriers to entry D. are no barriers to entry

D. are not barriers to entry

The distinguishing features of oligopoly are ___ and a ___ in the industry A. no barriers to entry; large number of firms B. no barriers to entry; few firms C. barriers to entry; large number of firm D. barrier to entry; few firms

D. barrier to entry; few firms

Advertising costs of a monopolistically competitive firm are ___. A. the same as a monopoly B. greater than a monopoly and the same as a perfectly competitive firm C. less than a perfectly competitive firm D. greater than a perfectly competitive firm

D. greater than a perfectly competitive firm

Monopolistic competition is a market structure in which A. natural or legal barrier prevent the entry of new firms B. firms compete only on product prices C. a large number of firms compete D. firms produce identical products

C. a large number of firms compete

If a firm spends $600 more on advertising its, A. ATC curve shifts upward and its MC curve does not shift B. ATC curve shifts upward and its MC curve shifts downward C. ATC and MC curves shift upward D. MC curve shifts upward and its ATC curve does not downward

A. ATC curve shifts upward and its MC curve does not shift

The small town of Narberth has two pizza stores. Which of the following statements are CORRECT? I. The profits of each store depend on the price of the pizza at the other store. II. Both stores would increase their profit if they cooperated in setting their prices. A. Both I and II B. II only C. Neither I nor II D. I only

A. Both I and II

Which of the following is NOT a characteristic of monopolistic competition? A. Entry and exit is restricted B. Firms compete on price C. A large number of firms compete D. Firms compete on product quality

A. Entry and exist is retricted

Which of the following is NOT a characteristic of the market structure for monopolistic competition? A. Firms are price takers B. There are a large number of firms C. Firms are free to enter and exit D. Firm compete on product quality, price, and marketing

A. Firms are price takers

In the short run, a firm in monopolistic competition produces where A. MR=MC B. the given market price is equal to MC C. MR=MC and economic profit is equal to zero D. the given market price is equal to MC and economic profit is equal to zero

A. MR=MC

Economists are critical of monopoly because A. monopolists can create a deadweight loss B. the demand for the monopolists product is the market demand curve C. economies of scope result in lower average costs D. monopolists can earn long-run economic profits

A. Monopolists can create a deadweight loss

A cartel is a group of firms that A. agree to restrict output to bost their profit B. produce differentiated products C. agree to boost output to boost their profit D. produce products that are complements

A. agree to restrict output to boost their profit

Patents encourage invention by A. allowing patent owners to make an economic profit B. preventing inventors from working on the same project C. offering subsidies to inventors D. offering tax breaks to inventors

A. allowing patent owners to make an economic profit

A single firm in a contestable market is limited in the amount of economic profit it can earn because there A. are no barriers to entry B. are barriers to entry C. is collusion D. are government regulation limiting its profit

A. are no barriers to entry

The key feature of an oligopoly is that there A. are only a few sellers B. are many buyers and sellers C. exists product differentiation D. is one seller

A. are only a few sellers

A monopolistically competitive firm is like a monopoly firm insofar as A. both have MR curves that lie below their demand curves B. neither is protected by high barriers to entry C. both earn an economic profit in the long run D. both face perfectly elastic demand

A. both have MR curves that lie below their demand curves

One difference between perfect competition and monopolistic competition is that A. firms in monopolistic competition face a downward-sloping demand curve B. monopolistic competition has barriers to entry C. a perfectly competitive industry has fewer firms D. in perfect competition, firms produce slightly differentiated products

A. firms in monopolistic competition face a downward-sloping demand curve

In a contestable market the Herfindahl-Hirschamn Index is ___ and the market behaves as if it is ___. A. high; perfectly competitive B. low; perfectly competitive C. low; a monopoly D. high; a monopoly

A. high; perfectly competitive

In monopolistic competition, an increase in a firm's advertising A. increases the firm's average total cost B. has no effect on its average cost curves C. has no effect on demand D. increases the firm's marginal cost

A. increases the firm's average total cost

A contestable market is one in which A. one or a small number of firms operate, but face competition from potential entrants B. one dominant firm sets the market price, and all other firms are price takers C. a group of firms enter into an agreement to restrict output and raise prices D. if a firm cuts its price, all other firms will follow the price cut

A. one or a small number of firms operate, but faces competition from potential entrants

One benefit of monopolistic completion over perfect competition is A. product variety B. excess capacity C. economic profit D. efficiency

A. product variety

An attempt by a firm to create a monopoly and gain the economic profit from the monopoly is called A. rent seeking B. intrusion C. profit seeking D. collusion

A. rent seeking

From the social perspective, a major criticism of oligopolies is that A. successful collusion lead to a monopoly-like outcome B. price wars usually break out C. cartels are unstable D. advertising hardly ever occurs

A. successful collusion lead to a monopoly-like outcome

Product differentiation exists within an industry if A. there are close but not perfect substitutes for a product B. there are no substitutes for a product C. the firm can sell all it wants at the chosen price D. there is a monopoly

A. there are close but not perfect substitutes for a product

If a monopolist lowers its price and its demand is inelastic, then its A. total revenue decreases B. total revenue increase C. total revenue does not change D. total revenue is negative

A. total revenue decreases

Methods of rent seeking include which of the following? I. Buying a monopoly II. Creating a monopoly III. Price discrimination A. I and III B. I and II C. III only D. II and III

B. I and II

Which of the following statements regarding an average-cost pricing rule for a natural monopoly is WRONG? A. It sets price equal to average total cost B. It is efficient C. More output is produced than if the firm maximized profit D. The firm makes zero economic profit

B. It is efficient

If the HHI among the firms in the long distance telecommunications market were equal to 1755, when would the Federal Trade Commission probably challenge a proposed merger between any two of the firms? A. It would not challenge because the HHI is less than 18000 B. It would challenge if the HHI would increase by more than 100 points C. It would challenge no matter what happened to the HHI because the market has so few firms D. IT would challenge if the HHI would increase by more than 50 points

B. It would challenge if the HHI would increase by more than 100 points

Which of the following is a distinguishing characteristic of oligopoly? A. Firms are free to enter and exit the industry B. Natural or legal barriers prevent the entry of new firms C. A large number of firms compete D. No one firm's actions directly affect the actions of the other firms

B. Natural or legal barrier prevent the entry of new firms

Which of the following is NOT necessary for a firm to engage in price discrimination? A. The firm must be able to identify different types of buyers B. The firm must product output for different buyers at different costs C. The firm must sell a product that cannot be resold D. The firm must be able to separate buyers by preventing resales from one customer to another

B. The firm must produce output for different buyers at different costs

IF the government grants a firm a public franchise to supply coal, a monopoly is created by A. price discrimination B. a legal barrier to entry C. a natural barrier to entry D. All of the above answers are correct

B. a legal barrier to entry

In what type of market is a cartel possible? A. a market in which firms sell a homogeneous good B. a market in which there are only a few firms and barriers to entry exist C. a market in which firms sell a differentiated good D. a market in which there are firms

B. a market in which there are only a few firms and barriers to entry exist

Under current guidelines, the Federal Trade Commission will likely challenge A. a merger if the HHI is between 1500 and 2500 and the merger increases the HHI by 50 points or more B. a merger if the HHI is between 1500 and 2500 and the merger increases the HHI by 100 points or more C. a merger if the HHI is below 1500 and the merger increases the HHI by less than 100 points D. All mergers if the Hwrfindahl-Hirschman index (HHI) is greater than 1500

B. a merger if the HHI is between 1500 and 2500 and the merger increases the HHI by 100 points or more

Limit pricing refers to A. how the price is determined in a kinked demand curve model of oligopoly B. a situation in which a firm might lower its price to keep potential competitors from entering its market C. the face that a monopoly firm always sets the highest price possible D. noen of the above

B. a situation in which a firm might lower its price to keep potential competitors from entering its market

A market structure in which a small number of firms compete is called___. A. monopolistic competition B. an oligopoly C. a small-number market D. a monopoly

B. an oligopoly

Dole Co. operates in a monopolistically competitive market. To try to earn an economic profit, Dole Co. will A. prevent other firms from entering the market B. continually seek to differentiate its product C. increase output D. increase its products price

B. continually seek to differentiate its product

When a person lobbies Congress to grant the person the exclusive right to sell a particular good, such lobbying activity is called A. marginal revenue B. deadweight loss C. producer surplus D. consumer surplus

B. deadweight loss

In monopolistic competition A. one firm's actions directly affect the actions of the other firms B. each firm's price can deviate from the average price of other firms C. each firm supplies a large part of the total market output D. firms typically determine the amount they produce through agreements with competitors

B. each firm's price can deviate from the average price other firms

At a monopolistically competitive firm's current level of product development, marginal revenue of product development is greater than its marginal cost. The firm will____. A. decrease product development B. increase product development C. sell only new products D. increase product development only if the consumer benefits

B. increase product development

Firms that can price discriminate between customers do so to ____. A. increase consumer surplus B. increase their profit C. increase employment D. decrease the quantity they produce

B. increase their profit

In monopolistic competition, product improvement and development A. yields a marginal benefit to the producer equal to price of the good B. is less than its efficient amount C. are valued by the consumer at an amount equal to the costs the producers have incurred D. None of the above answers are correct

B. is less than its efficient amount

Price discrimination, where different units of good are sold for different prices A. can be effectively practiced by all monopolists B. is possible if the good cannot be resold C. maximizes consumer welfare because each consumer pays only the price he or she is willing to pay D. is impossible because there can only be one market price

B. is possible if the good cannot be resold

It is easier for a monopolist to price discriminate between groups for a service than for a good because A. customers for goods usually do not differ with respect to their average willingness to pay B. it is easier for consumers to resell goods than resell services C. it is easier to calculate average willingness to pay for services D. it is easier to distinguish between groups of customers for services than customers for goods

B. it is easier for consumers to resell goods than resell services

Freedom of entry and exit in monopolistic competition A. means that firm's price and average total cost of producing are always equal B. leads to falling prices when new firms enter the market C. forces firms to abandon product differentiation but only in the long D. never allows firms to earn economic profits

B. leads to falling prices when new firms enter the market

The practice of the only seller in a market charging a price at the highest level that would still inflict a loss on a new entrant into the market is called A. agile pricing B. limit pricing C. collusive pricing D. trigger pricing

B. limit pricing

Because of a decrease in labor costs, a monopoly finds that its marginal cost and average total cost have decreased. The monopoly ___ its price and ___ its quantity. A. raises; decreases B. lowers; increases C. raises; increases D. lowers; decreases

B. lowers; increases

A firm in ____ will engage in ___ to try to earn an economic profit. A. perfect competition; price wars B. monopolistic competition; product differentiation C. monopolistic competition; price wars D. perfect competition; advertising

B. monopolistic competition; product differentiation

Price wars can be the result of A. a cooperative equilibrium B. new firms entering an industry and all firms then finding themselves in a prisoners dilemma C. new firms entering the industry and immediately agreeing to abide by a collusive agreement D. a firm playing for tit-for-tat strategy in which last period the competitors complied with a collusive agreement

B. new firms entering an industry and all firms then finding themselves in a prisoners' dilemma

The best example of a good sold in a monopolistically competitive market is A. the local newspaper B. pizza C. sewer services D. peaches

B. pizze

Brand name drugs are chemically identical to their generic counterparts. Yet, consumers often prefer the brand name product to the generic product. Making consumers think that a brand name drug differs from its generic counterpart is an example of A. perfect competition B. product differentiation C. oligopolists behavior D. price taking behavior

B. product differentiation

The main purpose of antitrust law is to A. regulate the stock and bond markets B. prohibit monopoly practices such as restricting output C. encourage the formation of cartels D. regulate advertising

B. prohibit monopoly practices such as restricting output

Of the following, the best example of oligopoly is A. the restaurant industry B. the cigarette industry C. the clothing industry D. wheat farming

B. the cigarette industry

Which of the following is a distinguishing characteristic of oligopoly? A. Firms are free to enter and exit the industry B. A large number of firms compete C. Each firms actions influence the profits of all the other firms D. Natural barriers cannot prevent the entry of new firms

C. Each firms actions influence the profits of all the other firms

Which of the following is NOT true of monopolistic competition? A. firms in monopolistic competition face barriers to entry, unlike firms in perfect competition B. Firms can compete on price and quality C. Firms produce a good that is a perfect substitute for their competitors' good D. There is free entry and exit

C. Firms produce a good that is a perfect substitute for their competitors' good

If a perfectly competitive market becomes a monopoly and the costs do not change, which of the following allocations of costs and benefits applies? A. The producer and society are harmed, but consumers benefit B. The producer is harmed, but consumers and society are harmed. C. The producer benefits, but consumers and society are harmed D. The producer and society benefit, but consumers are harmed

C. The producer benefits, but consumers and society are harmed

If firms in a monopolistically competitive industry are making an economic profit, then definitely there is A. an upward shift in each firm's cost curves as new firms enter the market B. a rightward shift in each firm's marginal revenue curve a s new firms enter the market C. a leftward shift in each firm's demand curve as a new firms enter the market D. All of the above answers are correct

C. a leftward shift in each firm's demand curve as a new firms enter the market

A barrier to entry is A. a necessary condition for perfect competition B. the result of highly elastic demand C. a natural or legal impediment that makes it difficult for new firms to enter a market D. a brick wall that a firm places around its corporate headquarters

C. a natural or legal impediment that makes it difficult for new firms to enter a market

When comparing perfect competition and monopolistic competition, we find that A. firms in monopolistic competition face barriers to entry, unlike firms in perfect competition B. firms in monopolistic competition produce identical products just as do firms in perfect competition C. advertising plays a large role in monopolistic competition, unlike in perfect competition D. firms in monopolistic competition are price takers just as is the case for firms in perfect completion

C. advertising plays a large role in monopolistic competition, unlike in perfect competition

Firms in monopolistic competition can be achieve product differentiation by A. setting the price equal to average revenue B. expanding plant size C. advertising special characteristics D. exploiting economies of scale in production

C. advertising special characteristics

The local banking industry currently has a HHI value of 1945 and two of the competing banks have considered merging. Because the merger would raise the HHI by 155 points, the Federal Trade Commission would likely A. allow the merger as long as the HHI did not increase by more than 155 points as promised B. allow the merger under the condition that HHI remain at the premerger level of 1975 C. challenge the merger D. not challenge the merge

C. challenge the merger

Under Federal Trade Commission merger guidelines, an industry with a HHI of 800 points is considered A. moderately concentrated B. concentrated C. competitive D. a monopoly

C. competitive

For a monopoly able to practice perfect price discrimination, the market A. supply curve is the same as the marginal cost curve B. demand curve is the same as the marginal cost curve C. demand curve is the same as the marginal revenue curve D. supply curve is the same as the marginal revenue curve

C. demand curve is the same as the marginal revenue curve

All of the following characteristics apply to monopolistic competition EXPET A. firms compete on product quality, price, and marketing B. there are no barriers to enter or exit the industry C. each firm produces the same identical product D. a large number of firms compete

C. each firm produces that same identical product

In monopolistic competition A. collusion is possible B. each firm's price cannot deviate from the average price of other firms C. each firm supplies a small part of the total market output D. one firm's actions directly affect the actions of the other firms

C. each firm supplies a small part of the total market output

A copyright creates a monopoly by restricting ____. A. demand for the product B. the prices that can be charged C. entry into the market D. the number of creators and inventors

C. entry into the market

In an oligopoly market, the Herfindahl-Hirschman Index is usually A. between 100-1,000 B. below 1,000 C. greater than 2,500 D. between 200 and 2,000

C. greater than 2,500

Donna owns the only dog grooming salon on Lonely Island. If Donna can price discriminate between dog owners who are seniors and those who are not, her economic profit will be ____ than if she does not price discriminate and the number of dog grooming will be ___ than if she does not price discriminate. A. less; less B. greater; less C. greater; more D. less; more

C. greater; more

A key difference between a monopoly and a perfectly competitive firm is that the monopolist A. has no marginal cost curve B. faces a perfectly elastic demand for its product C. has a marginal revenue curve that lies below its demand curve D. does not face fixed costs in the short run

C. has a marginal revenue curve that lies below its demand curve

A natural oligopoly can form A. only if firms sell a differentiated good B. if there is only one firm in the industry C. if there are economies of scale D. only if firms sell a homogeneous good

C. if there are economies of scale

One of the reasons that concentration ratios are not a perfect measure of competitiveness is that they A. do not measure how high the industry's prices are B. tell nothing about how high prices were in the past C. ignore potential competition D. cannot be measured

C. ignore potential competition

Which of the following is an example of natural monopoly? A. major league sports franchises in the largest cities B. cellular phone companies in a large city C. local water utility companies D. All of the above are natural monopolies

C. local water utility companies

Selling costs, such as advertising, are likely to be a large share of total cost in an industry that is A. a monopoly B. perfectly competitive C. monopolistically competitive D. non-profit

C. monopolistically competitve

In the market for batteries, the three largest firms earn 90% of the total revenue and there are 35 firms in the industry. This industry is best described as A. monopoly B. perfect competition C. oligopoly D. monopolistic competition

C. oligopoly

Brand names are an example of A. economies of scale B. illegal barrier to entry C. product differentiation D. oligopoly

C. product differentiation

If regulators of the local gas and water utility companies require those firms to price their service at marginal cost A. there would be a deadweight loss in their markets B. their customers would enjoy no consumer surplus C. the firms might require a tax-financed subsidy to survive D. None of the above answers are correct

C. the firms might require a tax-financed subsidy to survive

Because consumers value product variety A. monopolistically competitive industries are efficient B. in the long run, monopolistically competitive firms earn an economic profit C. the inefficiency and deadweight lost created by monopolistic competition is offset D. society must be more efficient with monopolistic competition than with perfect competition

C. the inefficiency and deadweight loss created by monopolistic competition offset

This type of firm would likely operate as a monopoly A. one of the few US auto makers B. ATT long distance phone service C. the local water company D. one of many US wheat famers

C. the local water company

The simplest prisoners' dilemma is a game that, in part, requires A. an oligopoly with one very large firm B. monopolistic competition C. two players who are unable to communicate with each other D. two players who are able to communicate with each other

C. two players who are unable to communicate with each other

All of the following are examples of price discrimination EXPECT A. "early bird specials" at a restaurant B. lower ticket prices for matinee performances C. buy-one-get-one-free offers D. "buy now, pay later" payment options

D. "buy now, pay later" payment options

Which of the following statement is TRUE? A. All monopolist earn short-run economic profits B. All monopolist does not need barriers to entry to sustain a long-run economic profit C. All monopolists are perfect price discriminators D. All monopolist will leave the market if it incurs an economic loss in the long run

D. A monopolist will leave the market if it incurs an economic loss in the long run

Dole Co. operates in a monopolistically competitive market. Which of the following characterizes Dole Co.'s market? A. Dole Co.'s product is slightly different from its competitors B. Dole Co. faced no barrier to entry when it decided to enter its market C. Dole Co. supplies a small portion of the market's output D. All of the above describe Dole Co.'s market

D. All of the above describe Dole Co.'s market

When natural or legal forces work to protect a form from potential competitors, the market is said to have ____. A. restricted competition B. Non-competitive entry C. Non-competitive supply D. Barriers to entry

D. Barriers to entry

Price discrimination by a monopoly A. increases consumer surplus B. increases the firm's profit C. decreases consumer surplus D. Both answers B and C are correct

D. Both answers B and C are correct

Suppose a new vaccine for Lyme disease is developed by Merck, a large drug company. Which of the following is most likely to occur? A. Merck will have a monopoly on this vaccine because of economies of scale B. Merck will not tell anyone about its discovery though it will sell the vaccine. C. Other firms will quickly copy the formula making the market for the vaccine competitive D. Merck will apply for a patent on the vaccine that grants it the monopoly rights to the vaccine for many years.

D. Merck will apply for a patent on the vaccine that grants it the monopoly rights to the vaccine for many years

Which of the following statements regarding the efficiency of monopolistic competition is FALSE? A. Resources are used efficiently when marginal social benefits equals marginal social cost B. A greater degree of product variety creates a loss because the quantity produced is less than the efficient quantity C. Compared to a situation with total product uniformity, monopolistic competition might be efficient D. Monopolistic competition is definitely inefficient because price exceeds marginal cost

D. Monopolistic competition is definitely inefficient because price exceeds marginal cost

The first antitrust law passed was the ___ A. Federal Trade Commission Act B. Clayton Act C. Robinson-Patman Amendment D. Sherman Act

D. Sherman Act

Which of the following statements is TRUE about contestable markets? A. There are significant barriers to entry B. Each firm faces a perfectly elastic demand C. Firms earn large economic profits D. There are few firms in the industry

D. There are few firms in the industry

When producers agree to restrict output, raise the price, and increase profits, the agreement is called ___ A. a monopoly agreement B. a pricing agreement C. an oligopoly agreement D. a collusive agreement

D. a collusive agreement

A market with one or a small number of firms but no barriers to entry is known as A. a natural monopoly B. a perfectly competitive market C.. monopolistic competition D. a contestable market

D. a contestable market

If economies of scale allow one cable TV firm to supply the entire market at the lowest possible cost, then this company is A. a monopoly, but not a natural monopoly B. a legal monopoly C. not a monopoly D. a natural monopoly

D. a natural monopoly

Two duopoly firms form a cartel. They decide to collude and fix the price of their good. Each individual firm will earn the highest profit if A. it sticks with the agreement and the other cheats B. they both cheat C. both stick with the agreement D. it cheats and the other sticks with the agreement

D. it cheats and the other sticks with the agreement

Game theory can be used for studying which of the following types of market structure? A. monopoly B. monopolistic competition C. perfect competition D. oligopoly

D. oligopoly

A contestable market is one in which there are A. many firms and entry into the market is not costly B. many firms and entry into the market is costly C. one or a few firms, and entry into the market is costly D. one or a few firms, and entry into the market is not costly

D. one or a few firms, and entry into the market is not costly

Which of the following is always a violation of the antitrust law? A. trying arrangements B. predatory pricing C. resale price maintenance D. price fixing among competitors

D. price fixing among competitors

In monopolistic competition, each firm supplies a ___ part of the total market output and its actions ___ the actions of the other firms A. small; directly affect B. large; directly affect C. large; do not directly affect D. small; do not directly affect

D. small; do not directly affect

Natural oligopoly is a situation where A. there are legal barriers to entry B. there is only one firm C. there are only two firms D. the level of demand can support only a few firms

D. the level of demand can support only a few firms

If a monopolist can perfectly price discriminate, then A. the deadweight loss is larger than if it cannot price discriminate B. it will charge just two different prices in two different markets C. it will not give a discount to those who buy in bulk D. there be will no consumer surplus

D. there be will no consumer surplus