quiz 2 - microeconomics

Which of the following best represents the pricing behavior of firms in a monopolistically competitive industry?

-In monopolistic competition, there are many firms competing against one another that are trying to find their own niches. This is the market characteristic that allows firms to have some market power. Because there are no barriers to entry, most firms in a monopolistically competitive industry will only earn normal profits since other firms can enter the market if there are above-normal profits. -In this case, Teen Angle Hardware is most representative of a monopolistically competitive firm.

The graph below shows the demand curves for two individual firms. Firm 1 experiences demand of D1, and Firm 2 experiences demand of D2. These firms are independent. They are not competitors, and have no relationship.

1) Firm 1 is more likely to be an industry with a monopolistically competitive Correctmarket structure, whereas Firm 2 likely operates in an industry with a pure monopoly Correctmarket structure. b. If these two firms are charging a price of $120, Firm 1 will sell less than CorrectFirm 2. c. If these two firms are charging a price of $100, Firm 1 will sell more than CorrectFirm 2.

A firm is operating in the United States with only two other competitors in the industry.

A firm is operating in the United States with only two other competitors in the industry. a. It is likely this industry would be characterized as oligopoly b. Firms in this industry will likely earn an economic profit c. If foreign firms begin supplying the product, increasing the number of competitors, it is likely that economic profits will fall

Which of the following best represents the pricing behavior of firms in an oligopolistic market?

Looking Over Your Shoulder Handbag Co. chooses the price it charges by estimating what its rivals are most likely to do and then taking their responses into consideration.

a. The Herfindahl-Hirschman Index and four-firm concentration ratio are used to measure b. An industry with one seller producing and selling 100% of the output, a pure monopoly, would experience a four-firm concentration ratio of c. An industry with one seller producing and selling 100% of the output, a pure monopoly, would experience a Herfindahl-Hirschman Index of

a) competition with an industry b)100 % c) 10,000

a. The government agency in charge of enforcement of antitrust laws is the b. The law making it illegal to attempt to monopolize or restrict trade or to conspire to restrict trade or monopolize is the c. The law passed to restrict mergers that significantly reduce competition in an industry and potentially create a monopoly is the d. The law passed to outlaw unfair methods of competition and unfair or deceptive acts or practices is the

a)Federal Trade Commission. b)Sherman Act. c)Clayton Act. d)Federal Trade Commission Act.

a. The economic definition of a cartel is b. Cooperation between firms in an industry is known as c. In the United States, cartels are

a)competing firms working together to fix prices and output. b)collusion c)illegal

The graph shows the payoff matrix for two competing firms in an oligopolistic market. The columns represent the potential strategies of Producer A and the rows represent the potential strategies of Producer B. The upper-right payoffs in each box represent the payoffs for Producer A and the lower-left payoffs represent the payoffs for Producer B.

a. Does Producer A have a dominant strategy? yes b. Does Producer B have a dominant strategy? yes c. The Nash equilibrium is Producer A: Low price; Producer B: Low price. c. Since both producers will choose Low Price, the outcome is Producer A: Low price; Producer B: Low price. Consequently, neither producer will change his or her strategy, even if they know the other player's strategy. Thus, Producer A: Low price; Producer B: Low price is a Nash equilibrium.

Suppose a new, rare metal was found that could provide electricity to a large number of households very inexpensively. Four firms control the land in which this rare metal can be mined.

a. The market for this rare metal is most similar to an oligopoly. b. Suppose the firms decide to work together to restrict output, therefore increasing price. It is said these firms are operating as a cartel and engaging in collusion . c. These firms will likely earn economic profits d. d. In the long run, it is likely government will break up the group.

Determine whether the following actions would be found illegal under the antitrust acts in the United States.

a. The two largest software firms decide to merge; together they would control nearly 60% of the market: Yes b. Two of the largest firms in the car industry decide to reduce output in order to increase prices in the market: Yes c. Firms in the peanut industry decide to pool funds to start an "Eat More Peanuts" campaign: No d. Firms operating in the market for breakfast cereal use nonprice competition, such as increasing advertising, in order to gain increased market shares: No e. A firm in the market for rubies purchases all the ruby mines in the world. It now controls the entire ruby market: Yes

Acme Anvils has a newly patented anvil that is ready for the market. While there are plenty of other anvil producers, Acme's anvils are unique. Past models have been featured in a number of animated short films over the years. The weekly demand and cost information for Acme Anvils are described in the graph below.

a. To maximize its profits, Acme should produce 100 anvils Correctand charge a price of $600 Correctper anvil. b. At its profit-maximizing level, Acme's weekly profits are $10,000 Correctper week c. Even though Acme has a patent on its particular type of anvil, there are many other potential anvil makers out there. Which of the following is most likely to happen in the long run? -Other firms will look for other innovations to try to capture some of Acme's profits. Correct

The graph below depicts the revenue and cost curves for a firm operating in the athletic apparel market.

a. To maximize profits the firm should produce output where MR = MC. This occurs at 80 units. The firm will charge a price equal to the demand curve at 80 units, or $14. b. At the profit-maximizing level of output, the average total cost per unit is $16. The average total cost is higher than the price charged. This means the firm will experience an economic loss on each unit sold. c. The firm is experiencing an economic loss of $160 ($2 loss per unit × 80 units sold).

The graph below depicts the revenue and cost curves for a firm operating in the athletic apperal market.

a. To maximize profits the firm should produce the output where MR = MC, this occurs at 60 units. The firm will charge a price equal to the demand curve at 60 units, or $20. b. The profit area can be represented by examining the difference between the demand curve ($14) and the average total cost curve ($12) for all 60 units sold. c. The profit for the firm is $120 ($2 profit per unit times the 60 units sold).

The following table presents information on the production of five firms that produce all of the output in an industry.

a. What is the four-firm concentration ratio for this industry? 85.71 ± .5 % b. What is the Herfindahl-Hirschman Index for this industry? 2,117.35 ± 5 a. The four-firm concentration ratio is found by adding the sales of each firm and dividing it by the total sales for all firms. The output from all firms in the industry is 1,400 (400 + 300 + 250 + 250 + 200). This number is the denominator. To calculate the numerator, the output of the top four firms must be summed: 1,200 (400 + 300 + 250 + 250). The four-firm concentration ratio is 85.71% (1,200/1,400 × 100).

The demand experienced by a firm operating in a monopolistically competitive market is more _______ than a monopoly due to an increase in the number of __________. The existence of substitutes will cause consumers to be more price-sensitive to changes in price.

elastic then substitututes

Oligopolies are considered to be

neither allocatively nor productively efficient.

Which of the following is an example of an oligopolistic market with a standardized product?

the market for aluminum Different brands and types of automobiles, cereal, and jewelry are not perceived by consumers as the same good. For example, there is quite a bit of difference between a Porsche and a Kia. In contrast, a metric ton of a certain type of aluminum is nearly the same regardless of which company produces it.

Which of the following is an example of an oligopolistic market with a differentiated product?

the market for cell phone services While certain types of copper, electricity, or beef have nearly the same properties and are even traded at exchanges, different cell phone providers offer a quite differentiated product when it comes to features, abilities, and data options.

Acme Anvils has a newly patented anvil that is ready for the market. While there are plenty of other anvil producers, Acme's anvils are unique. Past models have been featured in a number of animated short films over the years. The weekly demand and cost information for Acme Anvils are described in the graph below.

Acme Anvils has a newly patented anvil that is ready for the market. While there are plenty of other anvil producers, Acme's anvils are unique. Past models have been featured in a number of animated short films over the years. The weekly demand and cost information for Acme Anvils are described in the graph below. b. Acme maximizes its profit at the quantity where marginal revenue equals marginal cost. Marginal revenue and marginal cost are the same at a value of $200, which occurs at a quantity of 100. At a quantity of 100, the price charged is $600 per anvil and the average total costs are $500 per anvil. We know that profit is equal to total revenue minus total costs. However, this also implies that profit per unit is equal to price minus average total costs. Therefore, profit per unit can be found by taking price minus average total cost and total profit can be found by taking profit per unit multiplied by quantity. In this case, if the price is $600 per anvil, average total cost is $500 per anvil and quantity is 100 anvils. Then, profit per unit is $600 - $500 = $100. Taking profit per unit times quantity gives total profits of $100 × 100 = $10,000. Thus, Acme is earning profits of $10,000 per week. c. When there are profits in a monopolistically competitive market, other firms will try to enter into that market and become a close competitor to the other firms to gain some of the profit. Even though Acme has a patent on its particular type of anvil, other firms can find innovations that will make their anvils close substitutes to Acme's and try to capture some of Acme's profits.