microeconomics unit 4

114) Which of the following is true of a cartel? a. A cartel is a coalition of firms that seek to coordinate their decisions so all firms can earn a higher economic profit. b. A cartel is a way for firms to earn more by playing their dominant strategies. c. A cartel is considered stable. d. A cartel seeks to maximize total revenue of its members. e. A cartel sets price and output of its members in the same way that a price discriminating monopolist would.

a. A cartel is a coalition of firms that seek to coordinate their decisions so all firms can earn a higher economic profit.

104) Allocative and productive efficiency are possible in which of the following unregulated market structures? I. Perfectly competitive II. Monopoly III. Oligopoly IV. Monopolistically competitive a. I only b. II only c. III only d. I and IV only e. II and IV only

a. I only

89) Which of the following statements is true for a monopolist at the profit-maximizing output level? a. Price exceeds marginal revenue. b. Marginal cost exceeds price. c. Demand is price inelastic. d. Price equals marginal cost, which equals average total cost. e. The demand curve intersects the supply curve.

a. Price exceeds marginal revenue.

87) The condition for allocative efficiency is violated when a) firms are price makers (price searchers) b) short-run profits exist in a competitive industry c) price equals average total cost d) the market demand curve is inelastic in a competitive industry e) the market demand curve is elastic in a competitive industry

a. firms are price makers (price searchers)

106) Monopolistically competitive firms are inefficient because they a. produce a lower level of output at a higher average cost than do perfectly competitive firms. b. use production processes that are more capital-intensive than do perfectly competitive firms. c. face downward-sloping demand curves, ensuring that marginal revenue is greater than average d. produce at that level of output where price equals marginal cost. e. realize diseconomies of scale.

a. produce a lower level of output at a higher average cost than do perfectly competitive firms.

116) Antitrust legislation is designed to make it illegal for a firm to monopolize an industry. Which of the following best states the economic rationale for this legislation? a. A monopolist produces too little of the good, producing an output that minimizes the average cost of production. b. A monopolist produces too little of the good, charging consumers a price that exceeds the marginal cost of production. c. A monopolist is more likely to pollute the environment than are firms in a competitive industry. d. A monopolist engages in price discrimination, charging low-income people with elastic demand curves a higher price than that charged to high-income people with inelastic demand curves. e. A monopolist produces too much of a good, attracting scarce factors of production that might be better utilized in other industries.

b. A monopolist produces too little of the good, charging consumers a price that exceeds the marginal cost of production.

110) If all of the firms in an oligopoly could, without cost, form an industry-wide cartel to jointly maximize profits, the demand curve facing the cartel would be a. less elastic than the industry demand curve. b. the same as the industry demand curve. c. more elastic than the industry demand curve. d. perfectly inelastic. e. horizontal at the equilibrium price.

b. the same as the industry demand curve

103) What happens to a monopolist's price, profits, and output if its fixed costs decrease?

ALL DECREASE

103) Which of the following is true of monopolists who practice price discrimination? They charge all customers the same price. b. They earn a smaller profit than those who do not practice price discrimination. c. They charge customers different prices according to different elasticities of demand. d. They produce lower quantities than pure monopolists. e. They produce the same quantity of output as pure monopolists.

c. They charge customers different prices according to different elasticities of demand.

108) Characteristics of an oligopolistic market include which of the following? I. Easy entry and exit of firms II. Few firms III. Interdependence among firms a. I only b. II only c. III only d. II and III only

d. II and III only

91) Monopolies are inefficient compared to perfectly competitive firms because monopolies a. produce output with average total cost exceeding average revenue. b. produce more output than is socially desirable. c. charge a price less than marginal revenue. d. charge a price greater than marginal cost. e. charge a price less than average total cost.

d. charge a price greater than marginal cost.

109) Interdependence among firms is a characteristic primarily associated with a. labor markets. b. perfect competition. c. monopoly. d. oligopoly. e. monopolistic competition.

d. oligopoly

111) Characteristics of an oligopoly, which can be demonstrated by game theory, include which of the following? I. Collusion can increase oligopolists' profits. II. Oligopolistic firms are interdependent. III. Independent price decision-making leads to lower returns. a. I only b. II only c. III only d. I and II only e. I, II, and III

e. I, II, and III

90) Which of the following is true of a pure monopolist's demand curve? It is perfectly inelastic. b. It is perfectly elastic. c. It coincides with its marginal revenue curve. d. It lies below its marginal revenue curve. e. It lies above its marginal revenue curve.

e. It lies above the marginal revenue curve.

115) which of the following best characterizes the firms in an oligopoly industry? a. Firms can easily enter the industry when profits are high. b. There are more firms than in a monopolistically competitive industry. c. They are independent. d. They always collude to increase profits. e. They use strategic decision making.

e. They use strategic decision making.

107) In the long run, a monopolistically competitive firm will make a. more economic profit than a perfectly competitive firm. b. less economic profit than a perfectly competitive firm. c. more economic profit than a monopoly. d. more economic profit than an oligopolist. e. zero economic profit.

e. zero economic profit

88) If a perfectly competitive industry were monopolized without any changes in cost conditions, the price and quantity produced would change in which of the following ways?

price increase, quantity decrease