Microeconomics Chapter 16 and 17
Which type of oligopoly always has the fewest number of firms?
duopoly
Nash Equilibrium
a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen
In which of the following market structures do firms have the same profit maximizing condition? - A firm in a competitive market and a firm in a monopolistically competitive market - A firm in a monopsony and a firm in a monopolistically competitive market - A firm in a monopoly and a firm in a monopolistically competitive market - A firm in an oligopoly and a firm in a monopolistically competitive market
A firm in a monopoly and a firm in a monopolistically competitive market
Which of the following market structures have zero economic profits in the long run? - Monopoly and oligopoly - Monopoly and monopolistic competition - Competitive markets and monopolistic competition - Oligopoly and competitive markets
Competitive markets and monopolistic competition
If both players in a repeated prisoner's dilemma game use the tit-for-tat strategy, what happens?
Cooperation will be maintained indefinitely.
Which of the following correctly describes profits in the long run for a monopolistically competitive firm? - Firms maximize profits when marginal revenue is equal to price and demand is equal to average total cost. - Firms maximize profits when price is equal to marginal cost and average total cost. - Firms maximize profits when marginal revenue is equal to price and average total cost. - Firms maximize profits when marginal revenue is equal to marginal cost and demand is equal to average total cost.
Firms maximize profits when marginal revenue is equal to marginal cost and demand is equal to average total cost.
Which of the following explains why, from society's standpoint, cooperation among oligopolists is undesirable? - It leads to output levels that are too low and prices that are too high. - It increases the variety of products for consumers. - It leads to output levels that are too high and prices that are too low. - It increases competition to an undesirable level.
It leads to output levels that are too low and prices that are too high.
Which of the following correctly describes the profit maximizing decision in the long run for a monopolistically competitive firm? - Marginal revenue is equal to price and price is equal to average total cost - Price is equal to marginal cost and average total cost - Marginal revenue is equal to price and average total cost - Marginal revenue is equal to marginal cost and price is equal to average total cost
Marginal revenue is equal to marginal cost and price is equal to average total cost
Which of the following is a market where consumers are exposed to many differentiated products?
Monopolistic competition
Which of the following is true for monopolistic competition and perfect competition in the long run? - Monopolistically competitive firms and perfectly competitive firms operate at the efficient scale. - Monopolistically competitive firms operate at excess capacity and perfectly competitive firms operate at the efficient scale. - Monopolistically competitive firms operate at the efficient scale and perfectly competitive firms operate at excess capacity. - Monopolistically competitive firms and perfectly competitive firms operate at excess capacity.
Monopolistically competitive firms operate at excess capacity and perfectly competitive firms operate at the efficient scale.
Which of the following refers to a controversy over antitrust laws? - Antitrust laws often encourage firms to collude and reduce social welfare compared to the unregulated market. - Sometimes antitrust laws target a business whose practices appear to be anti-competitive but in fact have legitimate purposes. - Antitrust laws are enforced by agencies whose self-interest contradicts the interests of society as a whole. - Antitrust laws enable government bureaucracies to control prices and production decisions made by private firms.
Sometimes antitrust laws target a business whose practices appear to be anti-competitive but in fact have legitimate purposes
Which of the following statements is NOT correct? - The combined output of duopolists who successfully collude equals the output that would be produced by a monopolist - The incentives faced by duopolists result in them undercutting each other's price, but not to the point where their prices equal the competitive price. - The incentives faced by duopolists result in their joint production being more than the monopoly level, but not as high as the competitive level. - Successful collusion requires direct communication.
Successful collusion requires direct communication.
Which of the following laws first introduced the concept of "triple damages"? - The Sherman Act . - The law of demand. - The United States Constitution. - The Clayton Act.
The clayton act
Which of the following is true for a firm in a monopolistically competitive market? The firm earns positive economic The firm creates the same deadweight loss as a monopoly. The firm operates at the efficient scale. The firm maximizes profits where price equals marginal cost.
The firm creates the same deadweight loss as a monopoly.
Which of the following is true for a monopolistically competitive firm in the long run? - The firm earns zero economic profits and is socially efficient. - The firm earns zero economic profits and creates a deadweight loss. - The firm earns positive economic profits and is socially efficient. - The firm earns positive economic profits and creates a deadweight loss.
The firm earns zero economic profits and creates a deadweight loss.
Which of the following describes an imperfectly competitive firm? - horizontal demand curves - many small firms - identical products - some price-setting ability
some price setting ability
tying
the anticompetitive practice of requiring buyers to purchase one product in order to get another
If use of a common resource by two people creates payoffs like the prisoner's dilemma, then
the cooperative outcome is good for the two people and good for society.
excess capacity
the difference between a firm's profit-maximizing quantity and the quantity that minimizes average cost
If price effect > output effect
the firm reduces production
In the standard prisoners' dilemma game, if one prisoner remains silent
the other prisoner will confess
concentration ratio
the percentage of the market's total output supplied by its four largest firms
predatory pricing
the practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market
As the number of firms in an oligopoly increases,
the price effect decreases, giving firms more of an incentive to increase output.
efficient scale
the quantity of output that minimizes average total cost (perfectly competitive firms)
game theory
the study of how people behave in strategic situations
Game theory can be best applied to situations where
there are a few firms
Oligopoly departs from the perfectly competitive ideal because
there are only a few sellers in the market
Reneges
to go back on one's word
What is the primary purpose of the Sherman Antitrust Act of 1890?
To establish criminal responsibility for agreements among oligopolists.
In the short run a monopolistically competitive firm operates like a monopoly. (T/F)
True
Which of the following profit scenarios is possible for a firm in a monopolistically competitive market in the long run? - Zero economic profit - Negative accounting profit - Negative economic profit - Positive economic profit
Zero economic profit
A firm in a monopolistically competitive market is similar to a monopoly in that they each observe
a downward-sloping demand curve.
monopolisitc competition
a market structure in which many companies sell products that are similar but not identical
oligopoly
a market structure in which only a few sellers offer similar or identical products
Which of the following markets is most likely to be monopolistically competitive? - a market with a concentration ratio of 80% - a market with differentiated products - a market in which firms are price takers - a market with identical products
a market with differentiated products
The four major producers of washing machines in the U.S. are General Electric, Kenmore, Maytag, and Whirlpool. The market for washing machines is likely characterized as
an oligopoly
Jayden and Katherine are competitors in a local market deciding whether to advertise. If both of them advertise, each will earn a profit of $100,000. If neither of them advertise, each will earn a profit of $150,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $X and then other will earn $40,000. What value of X will make advertising a dominant strategy for Katherine - there is no value that will make advertising a dominant strategy for Katherine - any value above $40,000 - any value above $150,000 - any value above $100,000
any value above $150,000
A monopolistically competitive firm in the long run will operate
at excess capacity
product-variety externality
because consumers get some consumer surplus from the introduction of a new product, entry of a new firm conveys a positive externality on consumers
business-stealing externality
because other firms lose customers and profits from the entry of a new competitor, entry of a new firm imposes a negative externality on existing firms
A monopolistically competitive firm operates - at the efficient scale creating excess capacity in the long run. - below the efficient scale creating excess capacity in the long run. - at the efficient scale, exhausting all excess capacity in the long run. - above the efficient scale creating excess capacity in the long run.
below the efficient scale creating excess capacity in the long run.
monopolistically competitive market departs from the perfectly competitive ideal because
each of the sellers offers a somewhat different product.
A monopolistically competitive firm and a perfectly competitive firm each operate at excess capacity in the long run. (t/f)
false
Economists believe that retail price maintenance is detrimental to society, whereas predatory pricing may in fact be beneficial. (t/f)
false
For a market to be a duopoly, there must be two firms and they must collude. (t/f)
false
In a competitive equilibrium, firms choose their best strategy given the strategies chosen by the other firms in the market. (t/f)
false
Only the U.S. Justice Department has the authority to initiate legal suits to enforce antitrust laws. (t/f)
false
Suppose that the two firms in a duopoly have formed an agreement to maximize their joint profits by colluding together. Each firm is also maximizing their individual profit. (t/f)
false
There is always a need for policymakers to try to limit a firm's pricing power, regardless of whether the market is competitive, a monopoly, or an oligopoly. (t/f)
false
A monopolistically competitive firm observes a downward-sloping demand curve because
firms produce a differentiated product.
The oligopoly price is less than the monopoly price but
greater than the competitive price (which equals marginal cost).
when firms in an oligopoly individually choose production to maximize profit, they produce a quantity of output
greater than the level produced by monopoly and less than the level produced by perfect competition.
Most firms in the U.S. would be characterized as
imperfectly competitive
imperfect competition
industries fall somewhere between the polar cases of perfect competition and monopoly
Which of the following market structures charge a price equal to marginal cost when maximizing profits? - perfect competition - monopolistic competition - duopoly - monopoly
perfect competition
Which of the following markets is likely to be monopolistically competitive? - pizza - mobile phone service - tablets - eggs
pizza
resale price maintenance
price fixing imposed by a manufacturer on wholesale or retail resellers of its products to deter price-based competition
Monopolistic competition creates a deadweight loss because
price is greater than marginal cost.
The positive externality conveyed on consumers when a new firm enters a monopolistically competitive market is the __________ externality, and the negative externality conveyed on producers when a new firm enters a monopolistically competitive market is the ___________ externality.
product-variety; business-stealing
the monopolistically competitive firm follows a monopolist's rule for
profit maximization
losses encourage exit, and exit shifts the demand curves of the remaining firms
to the right. As the demand for the remaining firms' products rises, these firms experience rising profits
if the duopolists individually pursue their own self-interest when deciding how much to produce, they produce a
total quantity greater than the monopoly quantity, charge a price lower than the monopoly price, and earn total profit less than the monopoly profit.
In some prisoner's dilemma situations, a breakdown of cooperation is beneficial to society. (t/f)
true
A monopolistically competitive firm operates
where average total cost is decreasing in the long run.
Duopoly
an oligopoly consisting of only two firms
If output effect > price effect
the firm increases production
profit encourages entry, and entry shifts the demand curves faced by the incumbent firms
to the left; demand falls for incumbent firms and they experience declining profit
cartel
a group of firms acting in unison
as the number of sellers in an oligopoly grows larger, an oligopolistic market looks more and more like a
competitive market
the demand curve for a monopolistically competitive market is
downward sloping
Which of the following is a difference between a monopolistically competitive firm and a firm in a competitive market in the long-run? -A monopolistically competitive firm and a firm in a competitive market each operate where price is equal to marginal cost. - A monopolistically competitive firm and a firm in a competitive market each operate where average total costs are minimized. - A monopolistically competitive firm operates where marginal revenue is above marginal cost, while a firm in a competitive market operates where marginal revenue is equal to marginal cost. - A monopolistically competitive firm operates where average total cost is decreasing, while a firm in a competitive market operates where average total costs are minimized.
A monopolistically competitive firm operates where average total cost is decreasing, while a firm in a competitive market operates where average total costs are minimized.
Which of the following represents a difference between a monopoly and a monopolistically competitive firm in the long run? - Economic profits for a monopolist can be positive, while economic profits for a monopolistically competitive firm are zero in the long run. - Economic profits for a monopolist and monopolistically competitive firm are zero in the long run. - Economic profits for a monopolist can be negative, while economic profits for a monopolistically competitive firm are positive in the long run. - Economic profits for a monopolist and monopolistically competitive firm can be positive in the long run.
Economic profits for a monopolist can be positive, while economic profits for a monopolistically competitive firm are zero in the long run.
Which statement best explains how society benefits from the fact that, when choosing their actions, oligopolists often face a prisoners' dilemma? - Facing a prisoners' dilemma makes oligopolistic firms pay more attention to social than to individual outcomes. - Facing a prisoners' dilemma enables new firms to enter the industry and expand competition. - Facing a prisoners' dilemma puts pressure on the government to regulate the oligopolistic market. - Facing a prisoners' dilemma makes it less likely that an oligopoly can function like a monopoly.
Facing a prisoners' dilemma makes it less likely that an oligopoly can function like a monopoly.
A characteristic of monopolistic competition is a small number of firms. (T/F)
False
A monopolistically competitive firm operates at its efficient scale in the long run. (t/f)
False
In the short run a monopolistically competitive firm operates like a perfectly competitive firm. (T/F)
False
Which of the following conditions describes an oligopoly? - Firms in the market produce highly differentiated products. - Firms face a horizontal market demand curve. - The four-firm concentration ratio in the industry is below 40%. - Firms in the market have some price setting ability.
Firms in the market have some price setting ability.
Which of the following describes why a firm in a monopolistically competitive market is different from a firm in a perfectly competitive market? - a monopolistically competitive firm maximizes profits when price equals marginal revenue, and a perfectly competitive firm maximizes profits when price equals marginal cost. - a monopolistically competitive firm maximizes profits when price equals marginal cost, and a perfectly competitive firm maximizes profits when marginal revenue equals marginal cost. - a monopolistically competitive firm and a perfectly competitive firm maximizes profits when price equals marginal cost. - a monopolistically competitive firm maximizes profits when marginal revenue equals marginal cost, and a perfectly competitive firm maximizes profits when price equals marginal cost.
a monopolistically competitive firm maximizes profits when marginal revenue equals marginal cost, and a perfectly competitive firm maximizes profits when price equals marginal cost.
Prisoner's Dilemma
a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
dominant strategy
a strategy that is best for a player in a game regardless of the strategies chosen by the other players
Price equals marginal cost under perfect competition, but price is
above marginal cost under monopolistic competition.
collusion
an agreement among firms in a market about quantities to produce or prices to charge
monopolistic competition describes a market with the following attributes
many sellers, product differentiation, free entry and exit
Similar to a monopoly, a monopolistically competitive firm maximizes profits by choosing a level of output where price is less than marginal cost.
marginal revenue is equal to marginal cost.
Which of the following correctly describes the two types of imperfectly competitive markets?
monopolistic competition and oligopoly
The market structure with many firms selling products that are similar but not identical is __________, which is different from _____________, a market structure with only a few firms who offer similar or identical products.
monopolistic competition; oligopoly
antitrust laws prohibit explicit agreements among
oligopolists as a matter of public policy
A monopolistically competitive firm
operates with a deadweight loss since price is greater than marginal cost.