Microeconomics: Chapter 10,11,12 Part 2

In a competitive market, economic profits will: A) attract profit-maximizing entrepreneurs. B) cause new firms to leave the market. C) continue to be earned for a long time. D) all of the above. E) none of the above.

A) attract profit-maximizing entrepreneurs.

While there are many newspapers in the U.S., each city tends to have only one or two. If newspapers are generally local markets, then newspapers are characterized by a: A) low national concentration and a high Herfindahl-Hirshman Index (HHI) at the local level. B) low national concentration and a low HHI at the local level. C) high national concentration and a high HHI at the local level. D) high national concentration and a low HHI at the local level. E) constant national concentration and a high at the local level.

A) low national concentration and a high Herfindahl-Hirshman Index (HHI) at the local level.

Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries. The primary reason for the complication is the: A) fewness of firms. B) brand loyalty of consumers. C) mutual interdependence of firms. D) variability of concentration ratios. E) powerful effect of advertising.

C) mutual interdependence of firms.

In the short run, a perfectly competitive firm will always make an economic profit if: A) P=ATC. B) P>AVC. C) P=MC. D) P>ATC. E) P<AFC.

D) P>ATC.

The term oligopoly indicates: A) many firms and low entry barriers. B) many producers of a differentiated product. C) an industry whose four-firm concentration ratio is low. D) a few firms producing either a differentiated or a homogeneous product and high barriers. E) a one-firm industry. entry

D) a few firms producing either a differentiated or a homogeneous product and high barriers.

A perfectly competitive firm confronts a demand curve that is: A) vertical at the market price. B) upward sloping. C) downward sloping. D) horizontal at the market price. E) elastic.

D) horizontal at the market price.

Oligopolies would like to act like a: A) duopoly, but self-interest often drives them closer to the perfectly competitive outcome. B) competitive firm, but self-interest often drives them closer to the duopoly outcome. C) monopoly, but self-interest often drives them closer to the duopoly outcome. D) monopoly, but self-interest often drives them closer to the perfectly competitive outcome. E) monopolistically competitive form, but self-interest often drives them closer to the duopoly outcome.

D) monopoly, but self-interest often drives them closer to the perfectly competitive outcome.

Which of the following is characteristic of a purely competitive seller's demand curve? a) Price and marginal revenue are equal at all levels of output. b) Average revenue is less than price. c) Its elasticity coefficient is 1 at all levels of output. d) It is the same as the market demand curve.

a) Price and marginal revenue are equal at all levels of output.

The demand curve in a purely competitive industry is _____, while the demand curve to a single firm in that industry is _____. a) perfectly inelastic, perfectly elastic. b) downward sloping, perfectly elastic. c) downward sloping, perfectly inelastic. d) perfectly elastic, downward sloping.

b) downward sloping, perfectly elastic.

Which of the following is a feature of pure competition? a) firm's demand curve is perfectly inelastic b) each firm sells an identical product c) barriers to entry exist d) the firm is a "price maker"

b) each firm sells an identical product

In long-run equilibrium a purely competitive firm will operate where price is: a) Greater than MR but equal to MC and minimum ATC. b) Greater than MR and MC, but equal to minimum ATC. c) Greater than MC and minimum ATC, but equal to MR. d) Equal to MR, MC, and minimum ATC.

d) Equal to MR, MC, and minimum ATC.

When strategic interactions are important to pricing and production decisions, a typical firm will: A) set the price of its product equal to marginal cost. B) consider how competing firms might respond to its actions. C) generally operate as if it is a monopolist. D) consider exiting the market. E) consider merger and acquisition..

B) consider how competing firms might respond to its actions.

The kinked-demand curve model of oligopoly: A) assumes a firm's rivals will ignore any price change it may initiate. B) embodies the possibility that changes in unit costs will have no effect on equilibrium price and output. C) embodies the possibility that changes in unit costs will always change equilibrium price and output. D) assumes a firm's rivals will ignore a price cut but match a price increase. E) assumes a firm's rivals will match any price change it may initiate.

B) embodies the possibility that changes in unit costs will have no effect on equilibrium price and output.

The lemonade stands are perfectly competitive because: A) the kids get their ingredients from home and don't have to pay for them. B) it is easy to open a stand and easy to close it down. C) the table, cups and lemonade pitchers used in the stands are productive resources that are only useful for lemonade stands. D) the kids do not have regular jobs, so their opportunity costs are zero. E) demand for lemonade is seasonal.

B) it is easy to open a stand and easy to close it down.

Oligopolists should have a mutual interest in coordinating production decisions in order to maximize industry (joint): A) costs. B) profits. C) revenues. D) market share. E) market power.

B) profits.

A competitive firm: A) is able to keep other producers out of the market. B) would like to keep other producers out of the market but cannot do so. C) is powerless to alter its own rate of production. D) will not care if more producers enter the market. E) sells differentiated products.

B) would like to keep other producers out of the market but cannot do so.

When firms are faced with making strategic choices in order to maximize profit, economists typically use: A) the theory of monopoly to model their behavior. B) the theory of aggressive competition to model their behavior. C) game theory to model their behavior. D) cartel theory to model their behavior. E) the law of diminishing marginal utility to model their behavior.

C) game theory to model their behavior.

Of the following characteristics, which one applies exclusively to a perfectly competitive firm? A) it always earns a profit. B) it seeks only to minimize costs. C) it can sell all it wants to at the market price. D) it will never earn a profit. E) it has a narrow range of prices it can charge for its output.

C) it can sell all it wants to at the market price.

The equilibrium price in a market characterized by oligopoly is: A) same as in perfectly competitive markets, but higher than in monopoly markets. B) lower than in monopoly markets and lower than in perfectly competitive markets. C) lower than in monopoly markets and higher than in perfectly competitive markets. D) higher than in monopoly markets and lower than in perfectly competitive markets. E) higher than in monopoly markets and higher than in perfectly competitive markets.

C) lower than in monopoly markets and higher than in perfectly competitive markets.

In oligopoly markets sticky prices are the result of: A) the danger of price-fixing schemes being discovered by the government. B) the industry maintaining increasing level of output in the market. C) the uncertainty of competitor responses to price changes. D) rivals matching price increases, but not decreases. E) all of the above.

C) the uncertainty of competitor responses to price changes.

Price leadership: A) typically results in greater instability in oligopolistic markets. B) is illegal under the Federal Trade Commission Act. C) is common in perfectly competitive markets. D) permits oligopolistic firms in a given market to coordinate market-wide price changes. E) all of the above.

D) permits oligopolistic firms in a given market to coordinate market-wide price changes.

Which A) a few firms. of the following may characterize an oligopoly? B) high barriers to entry. C) significant market power. D) sticky price. E) all of the above.

E) all of the above.

The prisoners' dilemma is an important game to study because: A) all interactions among firms are represented by this game. B) most games present zero-sum alternatives. C) it demonstrates that non-cooperative outcome never exist. D) strategic decisions faced by prisoners are identical to those faced by firms engaged in competitive agreements. E) it identifies the fundamental difficulty in maintaining cooperative agreements.

E) it identifies the fundamental difficulty in maintaining cooperative agreements.

A profit-maximizing firm's primary goal is to maximize: A) the difference between total revenues and total explicit costs. B) the ratio of total revenues to total costs. C) the difference between total implicit costs and total revenues. D) its total revenue in the short run. E) the difference between total revenues and total explicit plus implicit costs.

E) the difference between total revenues and total explicit plus implicit costs.

How might an oligopolist increase total revenue without changing price? A) reduce marketing efforts. B) reduce costs. C) increase competition among rivals. D) reduce output. E) through nonprice competition.

E) through nonprice competition.

Which of the following distinguishes the short run from the long run in pure competition? a) Firms can enter and exit the market in the long run, but not in the short run. b) Firms attempt to maximize profits in the long run, but not in the short run. c) Firms use the MR=MC rule to maximize profits in the short run, but not in the long run. d) The quantity of labor hired can vary in the long run, but not in the short run

a) Firms can enter and exit the market in the long run, but not in the short run.

The MR = MC rule can be restated for a purely competitive seller as P = MC because: a) each additional unit of output adds exactly its price to total revenue. b) the firm's average revenue curve is downward sloping. c) the market demand curve is downward sloping. d) the firm's marginal revenue and total revenue curves will coincide.

a) each additional unit of output adds exactly its price to total revenue.

Which of the following is not a characteristic of pure competition? a) price strategies by firms. b) a standardized product. c) no barriers to entry. d) a larger number of sellers

a) price strategies by firms.

A competitive firm will maximize profits at the output at which a) the excess of total revenue over total cost is greatest. b) total revenue and total cost are equal. c) price exceeds average variable cost by the largest amount. d) the difference between marginal revenue and price is at a maximum.

a) the excess of total revenue over total cost is greatest.

Price discrimination refers to: a) the selling of a given product at different prices that do not reflect cost differences.b) the difference between the prices a purely competitive seller and a purely monopolistic seller would charge. c) selling a given product for different prices at two different points in time. d) any price above that which is equal to a minimum average total cost.

a) the selling of a given product at different prices that do not reflect cost differences.

When a pure monopolist is producing its profit-maximizing output, price will: a) be less than MR. b) equal neither MC nor MR. c) equal MR. d) equal MC

b) equal neither MC nor MR.

With a natural monopoly, the fair return price: a) is allocatively efficient; the socially optimal price is allocatively inefficient. b) is allocatively inefficient; the socially optimal price is allocatively efficient. c) and the socially optimal price are both allocatively inefficient. d) and the socially optimal price are both allocatively efficient.

b) is allocatively inefficient; the socially optimal price is allocatively efficient.

The practice of price discrimination is associated with pure monopoly because: a) it can be practiced whenever a firm's demand curve is downward sloping. b) monopolists have considerable ability to control output and price. c) monopolists usually realize economies of scale. d) most monopolists sell differentiated products.

b) monopolists have considerable ability to control output and price.

One argument for having the government regulate natural monopolies is that without regulation: a) these monopolies usually produce things that are potentially harmful to our health. b) these monopolies produce at a level where marginal benefit is greater than marginal cost. c) these monopolies produce at a level where marginal benefit is less than marginal cost. d) the industry would become competitive and there would be too many firms in the market to achieve efficiency.

b) these monopolies produce at a level where marginal benefit is greater than marginal cost.

The usual problem with socially-optimal pricing through regulation of a natural monopoly is that: a) P<MC. b) P<AVC. c) P<ATC. d) P < MR.

c) P<ATC.

A purely competitive seller is: a) both a "price maker" and a "price taker." b) neither a "price maker" nor a "price taker." c) a "price taker." d) a "price maker."

c) a "price taker."

A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing: a) a loss that could be reduced by producing more output. b) a loss that could be reduced by producing less output. c) an economic profit that could be increased by producing more output. d) an economic profit that could be increased by producing less output

c) an economic profit that could be increased by producing more output.

Price is constant, or "given", for the individual firm selling in a purely competitive market because a) the firm's demand curve is down-sloping. b) of product differentiation reinforced by extensive advertising. c) each seller supplies an identical product. d) there are no good substitutes for its product.

c) each seller supplies an identical product.

Natural monopolies result from: a) patents and copyrights. b) pricing strategies. c) extensive economies of scale in production. d) control over an essential natural resource.

c) extensive economies of scale in production.

The loss of a purely competitive firm that closes down in the short run a) is equal to its total variable costs. b) is zero. c) is equal to its total fixed costs. b) cannot be determined.

c) is equal to its total fixed costs.

Marginal revenue for a purely competitive firm a) is greater than price. b) is less than price. c) is equal to price. d) may be either greater or less than price.

c) is equal to price.

When compared with the purely competitive industry with identical costs of production, a monopolist will produce: a) more output and charge the same price. b) more output and charge a higher price. c) less output and charge a higher price. d) less output and charge the same price.

c) less output and charge a higher price.

One defining characteristic of pure monopoly is that: a) the monopolist is a price taker. b) the monopolist uses advertising. c) the monopolist produces a product with no close substitutes 0. d) there is relatively easy entry into the industry, but exit is difficult.

c) the monopolist produces a product with no close substitutes 0.

In the long-run, the typical firm in pure competition will earn a) positive economic profit. b) negative economic profit. c) zero economic profit. d) none of the above.

c) zero economic profit.

Allocative inefficiency due to unregulated monopoly is characterized by the condition: a) P>ATC. b) P>MR. c) P>AVC. d) P>MC.

d) P>MC.

What is the meaning of the phrase "dilemma of regulation"? a) Natural monopolies achieve economies of scale, but charge high prices when there is no government regulation; government regulation reduces prices, but results in diseconomies of scale. b) Natural monopolies are profitable, but only if the government permits price discrimination; government regulation to restrict price discrimination reduces monopoly prices, but the regulation also reduces monopoly output. c) losses; the socially optimal price yields a normal profit but may not be allocatively efficient. d) The socially optimal price achieves allocative efficiency, but may produce economic losses; the fair return price yields a normal profit but may not be allocatively efficient.

d) The socially optimal price achieves allocative efficiency, but may produce economic losses; the fair return price yields a normal profit but may not be allocatively efficient.

In a purely competitive industry, in the short-run, a) the firm can operate at a loss. b) the firm can operate at a profit. c) the firm can shutdown. d) all of the above are possible

d) all of the above are possible

The MR = MC rule: a) applies only to pure competition. b) applies only to pure monopoly. c) does not apply to pure monopoly because price exceeds marginal revenue. d) applies both to pure monopoly and pure competition.

d) applies both to pure monopoly and pure competition

The usual problem with adopting a fair-return pricing policy for a natural monopoly is that: a) economic profits will be positive. b) economic profits will be negative. c) it is not productively efficient. d) it is not allocatively efficient.

d) it is not allocatively efficient.

Long-run competitive equilibrium: a) is realized only in constant-cost industries. b) will never change once it is realized. c) is not economically efficient. d) results in zero economic profits.

d) results in zero economic profits.

One feature of pure monopoly is that the demand curve: a) is vertical. b) is horizontal. c) slopes upward. d) slopes downward.

d) slopes downward.