Micro 3

(Figure: Collusion) Look at the figure Collusion. The quantity of output produced by firm 2 when there is collusion in the industry is shown by:

J.

_____ firms have the most market power.

Monopoly

Both monopolists and cartel members will find that a drop in price leads to:

a price effect that reduces total revenue

When a perfectly competitive industry is in long-run equilibrium, its firms:

allocate all of their resources efficiently

(Figure: Monopoly Profits in Duopoly) Look at the figure Monopoly Profits in Duopoly. Two firms could engage in _____ and reap monopoly profits.

collusive behavior

Suppose there are 10 identical firms in an industry and each produces 10% of the total market sales. The HHI for this industry would indicate that the industry is

competitive.

The De Beers company is described as a monopolist in the production of:

diamonds

In the long run, each firm in a perfectly competitive industry will:

earn only enough to cover the opportunity costs of the resources used in production.

When a firm finds that its ATC of production decreases as it increases production, this firm is said to be experiencing:

economies of scale.

When a monopolist practices price discrimination, compared to a single-price monopolist, producer surplus will:

increase

A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, to maximize profits (or minimize losses), this firm should:

increase output

A community college charges lower tuition fees to town residents than to nonresidents. This pricing strategy increases the profits of the community college. Using this information, we can conclude that nonresidents must have a _____ demand for attending the community college than residents.

less price-elastic

An industry characterized by a few interdependent firms and by barriers to entry is called:

oligopoly

If a player has an incentive to cheat no matter what the other player does and if both players act in this manner, both players will be worse off. This is a:

prisoners' dilemma.

(Figure: Payoff Matrix for Gehrig and Gabriel) The figure Payoff Matrix for Gehrig and Gabriel describes two people who sell handmade Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. For Gehrig and Gabriel, the dominant strategy is to:

produce 7,000 figurines

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

produce at a profit.

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4, the firm will produce quantity _____ and _____ in the short run.

q3; make a profit

A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down. Compared to the condition before the increase in marginal costs, the monopolist will _____ its price and _____ its level of production.

raise; decrease

The short-run industry supply curve:

shows the total quantity supplied by all firms in an industry for each possible price when the number of producers is fixed.

If the price is consistently below the average variable cost, then in the short run a perfectly competitive firm should:

shut down.

(Table: Coke and Pepsi Advertising Game) Look at the table Coke and Pepsi Advertising Game. The soft-drink industry is dominated by Coke and Pepsi, and each firm spends a lot of money on advertising. Suppose each firm is considering a costly television commercial during halftime of the Super Bowl. The table shows the payoff matrix of profits that each firm would receive from its advertising decision, given the advertising decision of their rival. Profits in each cell of the payoff matrix are given as (Coke, Pepsi). If each firm makes the decision whether to advertise on the Super Bowl independently, the Nash equilibrium is for Coke _____ and Pepsi _____ during the Super Bowl.

to advertise; to advertise

(Figure: Revenues, Costs, and Profits for Tomato Producers) Look at the figure Revenues, Costs, and Profits for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $18. At the profit-maximizing quantity of output in the figure, the farmer's total revenue is _____, total cost is _____, and profit is _____.

$90; $70; $20

Look at the table Variable Costs for Lots. During the winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of clearing anywhere from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $30, what is Alexa's profit per unit at the optimal output?

-$13.75

(Table: Prices and Demand) Look at the table Prices and Demand. Professor Dumbledore has a monopoly on magic hats. The marginal cost of producing a hat is $18. Suppose Dumbledore can perfectly price-discriminate. How many hats will he produce?

18

(Figure: Water Works) Look at the figure Water Works, which describes a small town's water works, a natural monopoly. If the water works is unregulated and maximizes profit, how many customers will it serve?

200

(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If these two producers formed a cartel, split the production of output equally, and acted to maximize total industry profits, each firm's output would be _____ and each firm's profit would be _____.

250; $1,250

(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $50, what quantity will Sergei produce to maximize profit?

3

(Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people taking all-day rafting trips on the river. The marginal cost and average cost of each lunch are a constant $4. If Joe is a monopolist, how many lunches will he produce in the long run?

30

Look at the table Cherry Farm. If all cherry farms are the same size, how much will each farm produce in long-run equilibrium?

4 pounds

(Table: Cherry Farm) Look at the table Cherry Farm. How much will the industry produce in long-run equilibrium?

400 pounds

In the long run, when there are economic profits, firms enter the industry, which will increase the market supply and price until economic profits are zero.

F

Suppose that Walmart buys fresh roses from several hundred small backyard gardeners in California. These gardeners are very likely to be able to engage successfully in tacit collusion.

F

(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. If the market price is G, the firm's total economic profit at its most profitable level of output is:

FGLK.

A monopolist who practices price discrimination can increase sales but can never increase profits above the level that would pertain if the single price was set so that marginal revenue and marginal cost are equal.

False

One of the most inefficient ways for duopolists to earn a profit is to engage in collusion or form a cartel.

False

When a monopolist practices price discrimination, the monopolist's profits will be lower than in a single-price monopoly.

False

(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If industry output is 700, each firm's profits will be _____ than they would be at the output of 500, which maximizes industry profit.

$200 less

Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is a monopoly, how much is total surplus when the monopolist maximizes profit?

$240

If a firm in perfect competition sells 10 units of output at $5 per unit, its marginal revenue is:

$5

The first law designed to curb monopoly power in the United States was the _____ Act.

Sherman Antitrust

Children's price elasticity of demand for hot chocolate is 0.5. Adults' price elasticity of demand for hot chocolate is 1.5. If the concession stand selling the hot chocolate wants to practice price discrimination, it should charge higher prices to adults.

T

Consumer surplus is higher under a single-price monopoly than under a perfectly price-discriminating monopoly.

T

Across most industries, oligopoly is far more common than either perfect competition or monopoly.

True

If there are many firms in an industry, there is little incentive for firms to engage in tacit collusion because a smaller proportion of the units of the product sold are affected by the price effect if a firm increases output

True

(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $40. If the cable company practices perfect price discrimination, deadweight loss will be:

$0

(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets but Ray continues to sell 250 gadgets, Ray's profits will be:

$1,000.

(Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is $18. How much is producer surplus at the Saint's profit-maximizing output?

$18

Provided that there are no external benefits or costs, resources are efficiently allocated when:

P=MC