Practice Test Chapter 12-14

If the industry depicted in the graph comprises only one seller, the profit-maximizing price and quantity will be:

P3 and Q3.

An industry having a four-firm concentration ratio of 30 percent:

is monopolistically competitive.

If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will approximate those of:

a pure monopoly.

Refer to the profits-payoff table for a duopoly. If initially firms X and Y are charging $5 and $4, respectively,

both firms would find it advantageous to collude to raise their prices by $1 each.

One difference between monopolistic competition and pure competition is that:

there is some control over price in monopolistic competition.

Based on the accompanying table, how many units would the given profit-maximizing nondiscrimination pure monopolist produce?

3.

Refer to the data. Suppose that firms A and F merged into a single firm. The four-firm concentration ratio and the Herfindahl index would be:

90 percent and 2,200, respectively.

Refer to the above graphs. The differences in the long-run equilibrium positions for a monopolistically competitive firm and for a purely competitive firm are illustrated by graphs:

B and C.

The price elasticity of a monopolistically firm's demand curve varies:

directly with the number of competitors but inversely with the degree of product differentiation.

Cartels are difficult to maintain in the long run because:

individual members may find it profitable to cheat on agreements.

Advertising can impede economic efficiency when it:

leads to greater monopoly power.

If a monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will shift:

left and become more elastic.

The larger the number of firms and the smaller the degree of product differentiation, the:

more elastic is the monopolistically competitive firm's demand curve.

The demand curve of a monopolistically competitive producer is:

more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.

Assuming no change in product demand, a pure monopolist:

must lower price to increase sales.

Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl index of 3,000. Most likely, this industry would achieve:

neither productive efficiency nor allocative efficiency.

When the value of a product to each user, including existing users, increases due to an increase in the total number of users—as in the case of Facebook—we refer to this as:

network effects.

In the U.S. market, people often refer to the "Big Three" in autos and the "Big Four" in accounting. These terms suggest that these two industries are:

oligopolies.

Two characteristics of oligopoly pricing that have frequently been observed are that:

oligopolistic prices tend to be "sticky" or inflexible, and when the firms do change their prices, they tend to do so together.

If the industry depicted in this graph were a pure monopoly, the product price would be:

$14.

The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she lowers the price from $20 to $18?

$30.

Refer to the data for a nondiscrimination monopolist. At its profit-maximizing output, this firm's total profit will be:

$82.

The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she raises the price from $10 to $12?

-$120.

Refer to the diagram. At the profit-maximizing level of output, total revenue will be:

0AJE.

Refer to the graph for a profit-maximizing monopolist. The firm will set its price equal to the distance:

0J.

The industry characterized by these data is:

an oligopoly.

Which of the following is characteristic of pure monopoly?

Barriers to entry.

Which market structure best characterizes the various Internet markets?

Differentiated oligopoly.

Refer to the diagram for a non-collusive oligopolist. We assume that the firm is initially equilibrium at point E, where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, the firm's marginal revenue curve will be (moving from left to right):

MR2abMR1.

As unregulated pure monopolist will maximize profits by producing that output at which:

MR=MC.

Which of the following is a unique feature of oligopoly?

Mutual interdependence.

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a homogeneous oligopolist in a highly concentrated industry?

Pittsburgh Plate Glass.

Which of the following statements is correct? In the short run, the pure monopolist will maximize total profits by producing at that level of output where the difference between price and average total cost is greatest. In the short run, the pure monopolist will charge the highest price it can get for its product.

Pure monopolists do not always realize positive profits, sometimes they suffer losses.

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor?

Subway Snadwichesl

Which of the following does not necessarily apply to a pure monopoly?

The firm will charge the highest price possible

Refer to the graphs of D and MR for a monopolist. We know that to maximize profits the firm will set a price:

above P2.

The firm described in the accompanying diagram is selling in:

an imperfectly competitive market.

The gains to monopolists from exercising market power:

are less than the losses to consumer in monopoly markets, resulting in a net loss to society.

Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will:

attract other firms to enter the industry, causing the existing firms' profits to shrink.

A potential negative effect of advertising for society is that it can:

be self-canceling and contribute to economic inefficiency.

Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will:

decide to increase advertising expenditures even if it means a reduction in profits.

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will:

decrease.

Refer to the diagrams, which pertain to monopolistically competitive firms. Long-run equilibrium is shown by:

diagram a only.

In the long run, a representative firm in a monopolistically competitive industry will end up:

earning a normal profit, but not an economic profit.

If enforcement of antitrust laws caused the two largest firms in this table to be divided in half, with each half having equal market share, the industry's four-firm concentration ratio would ______ and its Herfindahl index would ______.

fall; fall

In monopolistic competition there is an under allocation of resources at the profit-maximizing level of output, which means that:

price is greater than MC.

Refer to the game theory matrix, where the numerical data show the profits resulting from alternative combinations of advertising strategies for Ajax and Acme. Ajax's profits are shown in the upper right part of each cell; Acme's profits are shown in the lower left. Without collusion, the outcome of the game:

results in a prisoner's dilemma.

Refer to the diagram. This firm's demand and marginal revenue curves are based on the assumption that:

rivals will ignore a price increase, but match a price decrease.

Electric companies generally practice price discrimination and charge higher prices for electricity used for illumination and lower prices for electricity used for heat. These lower prices for electric heating result primarily from:

the existence of good heating substitutes.

On the graph, if the oligopolist's MC curve shifts from MC1 to MC2, the firm will charge:

the same price as before and sell the same amount of output; total revenue will remain the same.