Test: Chapters 25, 26, 27, 28
The table above depicts the cost and demand structure a natural monopoly faces. If regulators required the firm to practice marginal cost pricing, the quantity produced would be ______ and the price charged would be $______. What is the firm's profit under this regulatory framework? $______.
5 $75 $-31
Which of the following is true regarding the view of this type of business practice (versioning) by U.S. antitrust authorities? A. The services are viewed as separate and unique. B. This is not a form of price discrimination. C. The practice increases overall consumer satisfaction. D. All of the above are true
D. All of the above are true
For the producer of an information product, marginal cost is A. equal to average variable cost. B. less than average total cost. C. constant. D. All of the above.
D. All of the above.
Market solutions to the lemons problem entail A. product certification. B. product warranties. C. industry standards. D. All of the above.
D. All of the above.
Oligopolies may emerge in an industry because of A. economies of scale. B. mergers. C. barriers to entry. D. All of the above.
D. All of the above.
The effectiveness of regulation is mitigated when A. individuals reduce their vigilance toward safety when additional safety regulations are implemented. B. individuals generate a "feedback effect." C. firms engage in creative response. D. All of the above.
D. All of the above.
The government regulates monopolies because A. monopolies produce less than the socially desirable level of output. B. monopolies price their output above the marginal cost of production. C. monopolies generate inefficiency by creating a misallocation of resources. D. All of the above.
D. All of the above.
To address asymmetric information problems, governments may A. establish a regulatory apparatus to oversee all aspects of an industry's operations. B. enforce licensing requirements designed to provide minimum product standards. C. offer legal remedies to consumers. D. All of the above.
D. All of the above.
Which of the following will not shift the supply of labor? A. Changes in working conditions. B. Job flexibility. C. A large increase in the relative wages paid in a related industry. D. An increase in the wage rate
D. An increase in the wage rate
Consider a monopolistically competitive firm with the revenue and cost conditions depicted in the figure on the right. Which of the following statements best describe(s) the firm's behavior that it is charging a price greater than marginal cost? I. The firm is behaving anticompetitively and taking advantage of consumers. II. The firm is charging a price over and above the minimum average total cost to cover for the cost of product differentiation. III. Consumers willingly accept the increased production costs in return for more choice and variety of output. A. Only I. B. Only II. C. Only III. D. Both II and III.
D. Both II and III.
Which of the following characteristics applies to a monopolistically competitive industry? A. There are very few firms in the industry. B. Collusion is common. C. Firms in the industry each control a large share of the market. D. Firms act independently of each other.
D. Firms act independently of each other
For a monopsonist, the quantity of labor hired is determined by the intersection of the ________ curves and the wage rate is determined by the ________ curve. A. labor supply and labor demand; MRP B. MRP and labor supply; labor demand C. MFC and labor supply; MRP D. MRP and MFC; labor supply
D. MRP and MFC; labor supply
When viewing unions as monopoly sellers of a service, the goals the unions may pursue include all of the following except A. maximizing profits for the employers of union members. B. maximizing gross income for its members. C. employment for all union members. D. maximizing wage rates for certain workers.
A. maximizing profits for the employers of union members.
When the FDA re-approved older medications as "new" drugs, firms were able to sell the drugs at __________ prices. A. monopoly B. marginal cost C. government-regulated D. perfectly competitive
A. monopoly
Protecting consumers from problems arising from asymmetric information is a rationale for A. the regulation of non-monopolistic industries. B. allowing corporate mergers. C. the regulation of natural monopolies. D. government ownership of the means of production.
A. the regulation of non-monopolistic industries
If unions are successful in establishing a wage rate above the competitive market equilibrium wage, then A. there will be an excess of labor supplied. B. there will be an excess demand for labor. C. employment of union members will increase. D. the union has a goal of employing all of its workers.
A. there will be an excess of labor supplied.
A game in which the players will not negotiate is a A. non-cooperative game. B. zero-sum game. C. cooperative game. D. negative-sum game.
A. non-cooperative game.
The amount of unemployment equals the quantity of labor at point ______ minus the quantity of labor at point _____ at a weekly wage rate tha is _______ than $600.
B A higher
The table above gives some data from the production function of a firm that is a perfect competitor in both the product and labor markets. The wage rate in the industry is $300 and the price of the good produced is $15. The profit-maximizing quantity of labor to hire is A. 102 workers. B. 103 workers. C. 104 workers. D. 105 workers.
B. 103 workers.
A purely competitive firm faces the marginal product schedule shown in the table below. The price of the product is $25 and the wage rate is $200 per worker. The firm should hire A. 12 workers B. 14 workers C. 15 workers D. 11 workers
B. 14 workers
Which of the following goods would most likely be advertised using largely informative advertising? A. A hair styling salon. B. A car. C. A legal firm. D. A fast food restaurant.
B. A car.
Critics argue that monopolistically competitive markets are wasteful because A. due to large economies of scale, there should only be one firm in the market. B. price exceeds marginal cost and minimum average total cost. C. there are too few firms in the industry. D. consumers do not benefit from product differentiation.
B. price exceeds marginal cost and minimum average total cost.
The marginal product of labor represents the extra output attributed to employing additional workers. A. False B. True
B. True
The percentage of sales contiributed by the leading four firms in an industry is known as the four-firm concentration ratio. A. False B. True
B. True
When network effects are important then an industry can experience A. a vertical merger. B. positive market feedback. C. a zero-sum game. D. price-leadership.
B. positive market feedback.
All of the following conditions will make it more likely that firms will be able to enforce a cartel agreement except A. there is little fluctuation in prices. B. prices are not easily observed. C. the firms sell nearly homogeneous products. D. there are a small number of firms in the industry.
B. prices are not easily observed.
Which of the following regulated industries is most likely to be considered a natural monoploy? A. communication B. public utilities C. insurance D. banking
B. public utilities
Marginal revenue product is calculated as A. (change in total product) / (change in labor input). B. (marginal product) × (marginal revenue). C. (marginal revenue) × (marginal cost). D. (change in total cost) / (change in amount of resource used).
B. (marginal product) × (marginal revenue).
If whatever one player in a game wins comes at the expense of the other player(s) in the game, this is known as a A. reactionary game. B. zero-sum game. C. positive-sum game. D. negative-sum game.
B. zero-sum game.
A perfectly competitive firm faces the marginal product schedule shown above. The price of the product is $20 and the wage rate is $320 per worker. The marginal revenue product of the 14th worker is A. $20. B. $320. C. $120. D. $200.
C. $120.
What is the appropriate type of two-sided market where WSJ.com operates as a platform firm? A. Transaction− based market. B. Shared−input market. C. Audience−making market. D. Matchmaking market
C. Audience−making market.
Which of the following is a provision of the Clayton Act? A. Forbids restraint of trade and attempts to monopolize markets. B. Outlaws predatory pricing and deceptive business practices. C. Forbids price discrimination that substantially reduces competition. D. Forbids specific practices that restrain trade, exclusive dealerships, and some corporate stock ownership.
D. Forbids specific practices that restrain trade, exclusive dealerships, and some corporate stock ownership.
In order to raise wages above the market level for its workers, a union must A. have monopsony power. B. recruit better workers. C. limit the supply of labor in an industry. D.have the support of the government.
C. limit the supply of labor in an industry.
In the graph to the right, the marginal factor cost line of a monopsonist is A. line A. B. line B. C. line C. D. not pictured. n the graph to the right, the monopsonist will A. hire 15 workers and pay wage rate $45. B. hire 25 workers and pay wage rate $25. C. hire 25 workers and pay wage rate $12.50. D. hire 30 workers and pay wage rate $15.
C. line C. C. hire 25 workers and pay wage rate $12.50.
A game in which players as a group lose during the process of the game is called a A. positive-sum game. B. zero-sum game. C. negative-sum game. D. noncooperative game.
C. negative-sum game
Which of the following products is subject to network effects? A. Online DVD rental services. B. Broadcast T.V. services. C. Email services. D. Instant messaging services.
D. Instant messaging services.
Which of the following is a characteristic of a monopolistically competitive market? A. A single seller. B. Barriers to entry. C. Identical products. D. Long−run profits equal to zero.
D. Long−run profits equal to zero.
In a perfectly competitive labor market, firms are price takers. A. False B. True
B. True
Suppose that all firms in an industry collude to reduce output, which raises the product price to $6.37 and requires the perfectly competitive firm in the figure to the right to reduce its output from 500 units to 300 units. If this typical firm has agreed to participate in the proposed cartel, what is the total dollar amount of its economic incentive to cheat on the cartel agreement, assuming that all other firms continue to abide by the agreement? Explain your reasoning. If ATC = $5.73 at the reduced output of 300 units, then this typical firm's economic incentive to participate in the cartel is $_____ If ATC = $5.16 at the higher output of 600 units, then this typical firm's economic profits equal $______ if it regards the collusive cartel price as its available marginal revenue, and its economic incentive to cheat on the cartel agreement is $_____
$192 $726 $534
Suppose labor is available to a firm at a cost of $15 per hour. Also suppose that employing another hour of labor adds 2 units to output and that any amount of output can be sold for $10 per unit. An additional hour of labor would add $______in additional revenue to the firm. This firm should hire _______ labor. Now suppose that the last hour of labor hired by the firm has a marginal product of 1 units of output. The marginal revenue product of labor is now $_______ In this case, assuming the wage rate is still $15 per hour, the firm can increase its profits by hiring _______ labor.
$20 more $10 less
Consider the table above and graph to the right. Suppose that after long-run adjustments take place in the used-book market, the business ends up producing 4 units of output. In the long run, the market price will be $______ and economic profits will be $______
$3.28 (ATC for that unit) $0.00
A firm hires labor in a perfectly competitive labor market. Its current profit-maximizing hourly output is 100 units, which the firm sells at a price of $10 per unit. The marginal physical product of the last unit of labor employed is 5 units per hour. The firm pays each worker an hourly wage of $20. a. What marginal revenue does the firm earn from sale of the output produced by the last worker employed? $______ b. Does this firm sell its output in a perfectly competitive market? _______
$4 No
onsider the figure to the right. Suppose that the monopolist is contemplating hiring 14 units of labor, which it knows would cause the marginal product to decline to 142 units of output per unit of labor. The product price would also decrease to $4.40 per unit, and the firm's marginal revenue would decline to $3.20 per unit. What would be the firm's marginal revenue product if it hires the 14th unit of labor? If the firm hires the 14th unit of labor, the marginal revenue product of that unit of labor would be $______ per unit of labor.
$454.40 (mr x mp)
Pleasant Island has two natural gas wells, one owned by Mack and the other owned by Tom. Each well has a valve that controls the rate of flow of gas, and the marginal cost of producing gas is zero. The table below gives the demand schedule for gas on this island. If Mack and Tom form a cartel and maximize their joint profits, the price of gas on Pleasant Island will be $____ per unit. If Mack and Tom are forced to sell at the perfectly competitive price, the price of gas on Pleasant Island will be $____ per unit
$5 (TR is highest) $0
A firm that sells e-books - books in digital form downloadable from the Internet - sells all e-books relating to do-it-yourself topics (home plumbing, gardening, and so on) at the same price. At present, the company can earn a maximum annual profit of $35,000 when it sells 35,000 copies within a year's time. The firm incurs a 35-cent expense each time a consumer downloads a copy, but the company must spend $140,000 per year developing new editions of the e-books. The company has determined that it would earn zero economic profits if price were equal to average total cost, and in this case it could sell 40,000 copies. Under marginal cost pricing, it could sell 120,000 copies. In the short run, to the nearest cent, what is the profit-maximizing price of e-books relating to do-it-yourself topics? $_____ At the profit-maximizing quantity, to the nearest cent, what is the average total cost of producing e-books? $______.
$5.35 $4.35
The manager of a Pittsburgh shop wishes to sell on eBay a used telescope that is in good condition. The manager knows that prospective buyers perceive a 50-50 chance that the telescope is in good condition. If it is, buyers are willing to pay $860, but if it is in poor condition, they will pay only $220. What is the average amount a buyer will be willing to pay? Is there a lemons problem? Explain. The average amount that a prospective buyer will be willing to pay is $_____ Since the value of a used telescope that is in A. good condition exceeds the average amount that a prospective buyer will be willing to pay, there is not a lemons problem because only people with telescopes in poor condition will be willing to try to sell them on eBay. B. poor condition is less than the average amount that a prospective buyer will be willing to pay, there is a lemons problem because only people with telescopes in good condition will be willing to try to sell them on eBay. C. good condition exceeds the average amount that a prospective buyer will be willing to pay, there is a lemons problem because only people with telescopes in poor condition will be willing to try to sell them on eBay. D. poor condition is less than the average amount that a prospective buyer will be willing to pay, there is not a lemons problem because only people with telescopes in good condition will be willing to try to sell them on eBay.
$540 C. good condition exceeds the average amount that a prospective buyer will be willing to pay, there is a lemons problem because only people with telescopes in poor condition will be willing to try to sell them on eBay.
A profit-maximizing monopolist hires workers in a perfectly competitive labor market. Employing the last worker increased the firm's total weekly output from 110 units to 111 units and caused the firm's weekly revenues to rise from $25,250 to $25,875. What is the current prevailing weekly wage rate in the labor market? $______
$625
In the figure to the right, suppose that We is a wage rate of $31 per hour and Wu is a wage rate of $41 per hour. In addition, Qd is 11,000 workers per hour, Qe is 17,000 workers per hour, and Qs is 20,000 workers per hour. How much more or less do the firms in this industry spend, in total, on the labor employed each hour as a consequence of establishment of the union wage Wu above the equilibrium wage We? Firms spend a total of $_____ per hour _____ on unionized labor.
$76,000 less (41 x 11,000 = 451,000 31 x 17,000 = 527,000 527,000 (ununionized) - 451,000 (unionized) = 76,000)
Consider the figure to the right. The quantity Q1 is 1,900 units, the price P1 is $6 per unit, and the vertical distance to point C is $12 per unit. What is the dollar amount of the losses earned by this natural monopolist when its price is equal to its marginal cost of producing Q1 units? If the average cost AC1 is $10 per unit when Q1 units are produced, then the dollar amount of the losses earned by this natural monopolist when its price is equal to its marginal cost of producing Q1 units is $_____
$7600
Consider two strategically dependent firms in an oligopolistic industry, Firm A and Firm B. Firm A knows that if it offers extended warranties on its products but Firm B does not, it will earn $6 million in profits, and Firm B will earn $2 million. Likewise, Firm B knows that if it offers extended warranties but Firm A does not, it will earn $6 million in profits, and Firm A will earn $2 million. The two firms know that if they both offer extended warranties on their products, each will earn $3 million in profits. Finally, the two firms know that if neither offers extended warranties, each will earn $5 million in profits. Using the payoff matrix shown at right, fill in the values below for the situation faced by these two firms. Point 1 -- Value ____ Point 2 -- Value ___ Point 3 -- Value ____ Point 4 -- Value ____ Point 5 -- Value ____ Point 6 -- Value ____ Point 7 -- Value ____ Point 8 -- Value ____ What is the dominant strategy in this situation? A. Both firms offer extended warranties. B. Neither firm offers extended warranties. C. Firm A offers extended warranties but Firm B does not. D. Firm B offers extended warranties but Firm A does not. A dominant strategy A. always yields the unique best action for the decision maker no matter what action the other firms undertake. B. never results in the highest profits for both firms. C. cannot be evaluated. D. always results in the highest profits for both firms.
1 - 3 2 - 3 3 - 2 4 - 6 5 - 5 6 - 5 7 - 6 8 - 2 A. Both firms offer extended warranties. A. always yields the unique best action for the decision maker no matter what action the other firms undertake.
A single firm is the only employer in a labor market. The marginal revenue product, labor supply, and marginal factor cost curves that it faces are displayed in the diagram at the right. Use this information to answer the following questions. a. How many units of labor will this firm employ in order to maximize its economic profits? ______ units b. What hourly wage rate will this firm pay its workers? $______ c. What is the total amount of wage payments that this firm will make to its workers each hour? $______
1000 $10 $10000
Suppose the market wage it faces is $50. How many workers will the profit-maximizing firm hire? ______ workers
13
Suppose that for the firm, the goods market is perfectly competitive. The market price of the product is $4 at each quantity supplied by the firm. What is the amount of labor that this profit-maximizing firm will hire? _____ workers. What wage rate will this profit-maximizing firm pay? $______
13 workers $8
Suppose that the firm in the figure to the right is contemplating using 17 units of labor, and it knows that doing so would cause its total product to increase from 357 to 374 units. What would be the resulting marginal product of the 17th unit of labor employed? The marginal product of the 17th unit of labor employed would be _____ units of output per unit of labor
17
Consider the figure to the right. Suppose that we are willing to accept both federal regulatory spending per year and the annual number of Federal Register pages as measures of the extent of government regulation of businesses. Based on these measures, does any period unambiguously appear to stand out as one in which the extent of regulation declined? Both measures unambiguously fell between the early and middle ______, so according to these two measures, this was a period in which the extent of business regulation declined.
1980s
If this firm were allowed to operate as a monopolist, the quantity produced would be ____ and the price charged would be $_______ The amount of monopoly profit would be $_____
2 $90 $3
Consider the figure to the right. Suppose that during the relevant time period, the firm's marginal and average variable costs remain unchanged. If the firm had to set the price of its product equal to marginal cost, what would be the amount of its economic profit or loss, and how would this amount be related to its total fixed costs? If the firm were forced to use marginal cost pricing, it would produce ______ units at a price of ______ per unit. At this level of output, its ATC would be $______ per unit. Thus, the firm's total revenues (and total variable costs) would be $______ and its total costs would be $_______ so that the amount of its economic ______ would be $______ This economic _______ would be ______ the amount of its total fixed costs.
200 $2.50 $15.00 $500 $3000 loss $2500 loss equal to
For the combined book market that includes both the e-books and the physical books, the Herfindahl-Hirschman index is ______ Suppose that antitrust authorities have determined that the relevant market includes both e-books and physical books. These authorities perceive that a monopoly situation exists that can be challenged on legal grounds if the value of the Herfindahl-Hirschman index exceeds 5,000. On the basis of this criterion, do the antitrust authorities conclude that there are grounds for a legal challenge? A. Yes, because the Herfindahl-Hirschman index exceeds 5,000 in either of the two individual markets for e-books and physical books. B. Yes, since the Herfindahl-Hirschman index is just one indicator of the monopoly power. C. No, because the value of the Herfindahl-Hirschman index for the combined books market is less than 5,000. D. It cannot be determined based on the above information.
2728 C. No, because the value of the Herfindahl-Hirschman index for the combined books market is less than 5,000.
The table above depicts the cost and demand structure a natural monopoly faces. If regulators required the firm to practice average cost pricing, the quantity produced would be _____ and the price charged would be $85 What is the firm's profit under this regulatory framework? $_____
3 $85 $0
Suppose the graph on the right shows the cost curves for a monopolistic competitor producing an information good. Assume the marginal cost of production is $10. The profit-maximizing quantity is _____ thousand units. (Enter your response as a whole number.) The profit-maximizing price is $_____. In this case, the firm is earning an economic loss of $_____ thousand
30 $52 $120
Use the graph on the right to answer the following questions. The monopoly will produce _____ units and charge a price of $_____ per unit. Suppose the monopoly is regulated. If the regulatory agency wants to achieve economic efficiency, it should require a price of $_____ per unit. At that price, the monopoly will produce _____ units. At the regulated price, the monopoly will make a profit of $_____
48.00 $6.80 $6.40 56.00 $67.20
Manufacturing firms based in Columbus, Ohio, and Erie, Pennsylvania, have proposed a merger. If they were to merge, the resulting value of the Herfindahl-Hirschman Index (HHI) in the nationwide market for the product they produce would rise from 1,600 to 1,650. Under current U.S. antitrust guidelines, would this proposed merger raise concerns for the U.S. Justice Department or Federal Trade Commission? The change in the HHI is _____. Since the change in the HHI is _____ and the postmerger level of the HHI is _____, this proposed merger ______ generate concerns on the part of one or both regulators.
50 less than 100 between 1,500 and 2,500 will not
Suppose the graph on the right shows the cost curves for a monopolistic competitor producing an information good. Assume the marginal cost of production is $10. Suppose that the firm decides to set the price equal to marginal cost. The quantity demanded would be _____ thousand units. The firm would earn _____ of $_____ thousand.
55 an economic loss $1,650
For the market for e-books, the Herfindahl-Hirschman index is ______ For the market for physical books, the Herfindahl-Hirschman index is ______. Suppose that antitrust authorities have determined that there are separate relevant markets for e-books and physical books. In addition, these authorities perceive that a monopoly situation exists that can be challenged on legal grounds if the value of the Herfindahl Hirschman Index exceeds 5,000. On the basis of this criterion, in which market(s) do the antitrust authorities conclude that there are grounds for a legal challenge? A. physical book market only B. neither the e-book market nor the physical book market C. both the e-book market and the physical book market D. e-book market only
5750 3186 D. e-book market only
A monopoly firm hires workers in a perfectly competitive labor market in which the market wage rate is $60 per day. If the firm maximizes profit, and if the marginal revenue from the last unit of output produced by the last worker hired equals $10, what is the marginal physical product of labor? ______ units
6
Suppose that in the figure to the right, the vertical distance to point F is $10 per unit, the vertical distance to point A is $4 per unit, and Qm is 1,000 units. To measure the degree of monopoly power, economists often examine the differential between price and marginal cost as a percentage of the price. What would be the value of this measure of monopoly power for the natural monopolist depicted in the figure? The value of this measure of monopoly power for the natural monopolist would be _____ percent
60%
Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 16 percent, 24 percent, 20 percent, 12 percent, 11 percent, 9 percent, and 8 percent. The four-firm concentration ratio for the hamburger industry in this town is _____ percent. The Herfindahl index for the hamburger industry in this town is _______. Suppose the top three sellers combined to form a single firm. The four-firm concentration ratio would be ______. Suppose the top three sellers combined to form a single firm. The Herfindahl index would be _______.
72% 1642 92% 4010
Industry Y is dominated by five large firms that hold market shares of 31 percent, 24 percent, 18 percent, 14 percent, and 13 percent. The four-firm concentration ratio for this industry is _____ percent. The Herfindahl index for this industry is _____
87% 2226
The current wage rate is $20, and the rental rate of capital is $400. A firm's marginal physical product of labor is 160, and its marginal physical product of capital is 20,000. Is the firm maximizing profits for the given cost outlay? A. No. The marginal physical product of labor per dollar spent on wages is not equal to the marginal physical product of capital per dollar spent on capital. B. No. The marginal factor cost of labor is not equal to the marginal factor cost of capital. C. No. The marginal physical product of labor is not equal to the marginal physical product of capital. D. Yes. The firm is maximizing profits.
A. No. The marginal physical product of labor per dollar spent on wages is not equal to the marginal physical product of capital per dollar spent on capital.
In a six-firm industry, two firms each have sales shares of 30 percent, two firms each have sales shares of 15 percent, and two firms each have sales shares of 5 percent. What is the HHI value for this industry? A. 2,300 B. 2,250 C. 1,150 D. 100
A. 2,300
Suppose that a company based in Dallas, Texas, confronts only four other rival firms. Its own market share is 31 percent, which ties it with the other largest producer and seller in the industry. The other three firms each have a 12.67 percent market share. What is the value of the Herfindahl-Hirschman index? The value of the Herfindahl-Hirschman index is A. 2,403.6. B. 1,922.0. C. 2,994.9. D. 2,243.1. After the Cleveland firm's entry into the industry, the value of the Herfindahl-Hirschman index is A. 1,362.2. B. 2,323.2. C. 2,283.1. D. 2,162.7.
A. 2,403.6. B. 2,323.2.
Which of the following goods would most likely be advertised using largely persuasive advertising? A. A hair styling salon. B. A car. C. A clothing company. D. A legal firm.
A. A hair styling salon.
What is the appropriate type of two-sided market where NYTimes.com operates as a platform firm? A. Audience−making market. B. Matchmaking market. C. Transaction− based market. D. Shared−input market.
A. Audience−making market.
In 2003, the U.S. government created a "Do Not Call Registry" and forbade marketing firms from calling people who placed their names on this list. Today, an increasing number of companies are sending mail solicitations to individuals inviting them to send back an enclosed postcard for more information about the firms' products. What these solicitations fail to mention is that they are worded in such a way that someone who returns the postcard gives up protection from telephone solicitations, even if they are on the government's "Do Not Call Registry." In what type of behavior are these companies engaging? Explain your answer. A. Creative response behavior. Firms legally satisfy the terms of the regulation but evade its intent. B. Feedback effect behavior. Firms legally satisfy the terms of the regulation but evade its intent. C. Creative response behavior. Firms creatively but illegally evade the intent of the regulation. D. Feedback effect behavior. Firms illegally use consumers' feedback response to evade the intent of the regulation.
A. Creative response behavior. Firms legally satisfy the terms of the regulation but evade its intent.
A search good is a product with qualities that consumers lack the expertise to assess without assistance. A. False B. True
A. False
Definitive evidence of serious resource misallocation due to oligopolies exists in the United States. A. False B. True
A. False
In game theory, cooperation that continues as long as the other players continue to cooperate is known as opportunistic behavior. A. False B. True
A. False
Network effects are an infrequent feature of two-sided markets. A. False B. True
A. False
No individual firm in a monopolistically competitive market will advertise. A. False B. True
A. False
The market demand curve for labor is a simple horizontal summation of the labor demand curves of all individual firms. A. False B. True
A. False
Under both U.S. and EU antitrust rules, antitrust authorities are obliged to block any business combination that increases the dominance of any producer, regardless of what factors might have caused the business's preeminence in the marketplace or whether the antitrust action might have adverse implications for consumers. A. False B. True
A. False
Which of the following characteristics applies to an oligopoly market? A. Firms are interdependent. B. There is no competition. C. Firms in the industry each control a small share of the market. D. There are many firms in the industry.
A. Firms are interdependent.
In light of your answer to part (a), explain why many hog farmers, who in the past used corn as the main feed input in hog production, switched to cookies, licorice, cheese curls, candy bars, and other human snack foods instead of corn as food for their hogs. A. Human snack food is a relatively lower cost substitute for corn as hog feed. B. Human snack food is an absolutely lower cost complement for corn as hog feed. C. Human snack food is an absolutely lower cost substitute for corn as hog feed. D. Human snack food is a relatively lower cost complement for corn as hog feed.
A. Human snack food is a relatively lower cost substitute for corn as hog feed.
Which of the market structures has some ability to set the price and not earn long-run economic profits? A. Monopolistic competition. B. Monopoly. C. Perfect competition. D. Oligopoly
A. Monopolistic competition.
Does the presence of network effects guarantee that platform firms will be able to induce their products to "catch on" with consumers? A. No, while network effects can potentially improve the likelihood of favorable market feedback, platform firms must balance adding more customers with landing the "right" customers. B. Yes, if network effects are an important characteristic of an industry's product, it means that more people are using the product, and this guarantees the product will "catch on" with consumers. C. No, most consumers are not susceptible to network effects and instead choose to use products like Facebook or Twitter simply because they enjoy using them. D. Yes, by having a large base of customers, platforms are able to ensure that with any particular customer, they can find the "right match," thus guaranteeing their products to "catch on."
A. No, while network effects can potentially improve the likelihood of favorable market feedback, platform firms must balance adding more customers with landing the "right" customers.
The labor demand curve will shift for all of the following reasons except A. a change in wages in a competing industry. B. a change in demand for the final product. C. a change in labor productivity. D. a change in the price of a substitute or complementary resource.
A. a change in wages in a competing industry.
The possibility that asymmetric information can lead to a general reduction in product quality in an industry is known as A. the lemons problem. B. caveat emptor. C. market failure. D. the free-rider problem.
A. the lemons problem.
Consider the payoff matrix to the right. Firm 1 and Firm 2 are seeking to choose between Format A and Format B for their products. Which of the following statements best describes their profit-maximization? (up to $5 mil.) A. Since there are network effects, the firms would maximize profits if they both produced format B. B. Since there are network effects, Firm 1 would maximize profits by producing format A and Firm 2 would maximize profits by producing format B. C. Since there are no network effects, Firm 1 would maximize profits by producing format A and Firm 2 would maximize profits by producing format B. D. Since there are no network effects, the firms would maximize profits if they both produced format B.
A. Since there are network effects, the firms would maximize profits if they both produced format B.
Which of the following is not a key antitrust law? A. The Contestable Markets Act. B. The Robinson-Patman Act. C. The Sherman Act. D. The Federal Trade Commission Act. E. The Clayton Act.
A. The Contestable Markets Act.
Prices of tickets for seats on commercial passenger planes are typically in the hundreds of dollars, whereas trips can be made by automobile at much lower cost. Accident rates per person per trip in the airline industry are considerably lower than auto accident rates per person per trip. Based on these facts, discuss how regulatory costs and benefits may help to explain why government regulations require children to be placed in safety seats in automobiles but not on commercial passenger planes. A. The expected benefit of using child safety seats in automobiles is much higher than the expected benefit of using them on commercial passenger planes. B. The expected benefit of using child safety seats in automobiles is much lower than the expected benefit of using them on commercial passenger planes. C. The average benefit of using child safety seats in automobiles equals the average cost of installing them, but the average benefit of using them on commercial passenger planes exceeds the average cost of installing them on planes. D. The marginal benefit of using child safety seats in automobiles equals the marginal cost of installing them, but the marginal benefit of using them on commercial passenger planes exceeds the marginal cost of installing them on planes.
A. The expected benefit of using child safety seats in automobiles is much higher than the expected benefit of using them on commercial passenger planes.
A company with a registered trademark has the right to seek legal damages if someone makes unauthorized use of its brand name. A. True B. False
A. True
If a small number of firms in an industry are able to secure the bulk of the payoffs resulting from positive market feedback, oligopoly is likely to emerge as the prevailing market structure. A. True B. False
A. True
In a prefectly competitive market, firms will hire workers up to the point where the wage rate equals the marginal revenue product. A. True B. False
A. True
One rationale for government involvement in nonmonopolistic industries is the possibility of market failures. A. True B. False
A. True
Positive market feedback is the potential for a network effect to arise when an industry's product catches on with consumers. A. True B. False
A. True
Strategies that are generally successful no matter what action the other players undertake are called dominant strategies. A. True B. False
A. True
To minimize total costs for a particular rate of production, the firm will hire factors of production up to the point at which the marginal product per last dollar spent on each factor of production is equalized. A. True B. False
A. True
Under conditions of perfect competition in both product and labor markets, the demand for labor is a derived demand. A. True B. False
A. True
Consider the following fictitious sales data (in thousands of dollars) for books sold both over the Internet and in physical retail establishments. Firms have numbers instead of names, and Firm 1 generates book sales only over the Internet. Antitrust authorities judge that a single firm possesses 'monopoly power' if its share of sales in the relevant market exceeds 70 percent. Suppose that the antitrust authorities determine that bookselling in physical retail stores and Internet bookselling are individually separate relevant markets. Does any single firm have monopoly power, as defined by the antitrust authorities? A. Yes, Firm 1 has monopoly power in internet book sales. B. It is impossible to determine. C. No, because no firm has more than 70 percent of combined book sales. Suppose that in fact there is really only a single book industry, in which firms compete both in physical retail stores and via the Internet. According to the antitrust authorities' measure of monopoly power, is there actually cause for concern? A. There is a concern since Firm 1 has monopoly power in internet book sales. B. It is impossible to determine. C. No, because no firm has more than 70 percent of combined book sales.
A. Yes, Firm 1 has monopoly power in internet book sales. C. No, because no firm has more than 70 percent of combined book sales.
A new cancer treatment represents A. a credence good, with qualities that might be difficult for consumers lacking expertise to assess without assistance. B. a search good, since people must actually consume before they can determine their qualities. C. an experience good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. D. a credence good, since people must actually consume before they can determine their qualities. E. an experience good, since people must actually consume before they can determine their qualities. F. a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase.
A. a credence good, with qualities that might be difficult for consumers lacking expertise to assess without assistance.
All of the following are key characteristics of a monopolistically competitive industry except A. a homogeneous product. B. a differentiated product. C. the existence of close substitutes. D. a large number of firms.
A. a homogeneous product
When the qualities of a good are relatively easy to assess in advance of their purchase, the good is known as A. a search good. B. an information product. C. an experience good. D. an interactive good.
A. a search good.
A negative market feedback refers to A. a tendency for a good or service to fall out of favor with more consumers because other consumers have stopped buying the item. B. a tendency for the consumers to buy a smaller quantity of the product when their income decreases. C. a tendency for a good or service to come into favor with additional consumers because other consumers have chosen to buy the item. D. a tendency for the consumers to buy a smaller quantity of the product when its price increases.
A. a tendency for a good or service to fall out of favor with more consumers because other consumers have stopped buying the item.
Average cost pricing by regulated monopolies A. allows the firm to make a "fair" rate of return. B. forces the firm to operate at a loss. C. permits long-run monopoly profits. D. None of the above.
A. allows the firm to make a "fair" rate of return.
Categorize each of the following as an experience good, a search good, or a credence good or service, and justify your answer. A restaurant meal represents A. an experience good, since people must actually consume before they can determine their qualities. B. a search good, since people must actually consume before they can determine their qualities. C. a credence good, possessing qualities that are relatively easy for consumers to assess in advance of their purchase. D. a credence good, since people must actually consume before they can determine their qualities. E. an experience good, possessing qualities that are relatively easy for consumers to assess in advance of their purchase. F. a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase.
A. an experience good, since people must actually consume before they can determine their qualities.
The services of a carpet cleaning company represent A. an experience good, since people must actually consume before they can determine their qualities. B. a credence good, since people must actually consume before they can determine their qualities. C. a credence good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. D. a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. E. an experience good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. F. a search good, since people must actually consume before they can determine their qualities
A. an experience good, since people must actually consume before they can determine their qualities.
A violation of the Sherman Act requires A. behavior that indicates intent to monopolize. B. that any size-related dominance was not achieved deliberately. C. the cooperation of all firms. D. firms to earn excessive profits.
A. behavior that indicates intent to monopolize.
The advertising of credence goods contains A. both informational and persuasive advertising, so as to provide detailed information and at the same time persuade the consumer to try the product. B. neither informational nor persuasive advertising, since the consumers are in general wary of misleading advertisement. C. only informational advertising, so as to provide detailed information about the various features of the product. D. only persuasive advertising, so as to induce the consumer to purchase this particular product.
A. both informational and persuasive advertising, so as to provide detailed information and at the same time persuade the consumer to try the product.
The dominant strategy for the prisoner's dilemma is for A. both players to confess. B. only one player to confess. C. neither player to confess. D. There is no dominant strategy for the prisoner's dilemma.
A. both players to confess
If the marginal productivity of labor increases, the ________ curve for labor will shift to the ________. A. demand; right B. supply; left C. supply; right D. demand; left
A. demand; right
Enforcing a cartel agreement is A. difficult because firms in the cartel have an incentive to cheat on the agreement. B. best accomplished with an implicit contract detailing prices, output, and the division of profits. C. difficult when there is only a few large firms making most of the economic profit. D. best accomplished with an explicit contract detailing prices, output, and the division of profits.
A. difficult because firms in the cartel have an incentive to cheat on the agreement.
For a monopolistic competitor, short-run profits will tend to ________ in the long run and short-run losses will tend to ________ in the long run. A. disappear; disappear B. grow; shrink C. grow; grow D. remain steady; remain steady
A. disappear; disappear
The monopolistically competitive firm in the diagram is A. earning positive economic profits. B. earning economic profits equal to zero. C. earning positive accounting profits but negative economic profits. D. earning negative economic profits.
A. earning positive economic profits.
Creating the first copy of an information product often entails incurring a relatively sizable up-front cost. A. False B. True
B. True
Firms will enter a monopolistically competitive industry when there are A. economic profits. This will shift demand to the left, thus reducing each firm's market share and economic profits. B. normal profits. This will shift demand to the left, thus reducing each firm's market share and economic profits. C. normal profits. This will shift demand to the right, thus reducing each firm's market share and economic profits. D. any profits. This will shift supply to the right, thus increasing each firm's market share and profits.
A. economic profits. This will shift demand to the left, thus reducing each firm's market share and economic profits.
It is estimated that the total annual social cost associated with satisfying federal, state, and municipal regulations in the United States A. exceeds $1.75 trillion. B. averages $1 trillion. C. is almost $300 billion. D. is roughly $700 billion.
A. exceeds $1.75 trillion.
Products that an individual must consume before the product's quality can be established are A. experience goods. B. search goods. C. credence goods. D. public goods.
A. experience goods.
The difference between monopolistic competition and perfect competition is that in comparison to perfect competition, monopolistic competition has A. fewer firms, product differentiation, some price control, and relatively easy but not barrier-free entry. B. more firms, product differentiation, some price control, and relatively easy but not barrier-free entry. C. fewer firms, no product differentiation, price control, and relatively easy, barrier-free entry. D. more firms, no product differentiation, some price control, and relatively easy, barrier-free entry.
A. fewer firms, product differentiation, some price control, and relatively easy but not barrier-free entry.
Price collusion is mutually profitable because each firm achieves A. higher profits. B. lower costs. C. higher productivity. D. increased sales.
A. higher profits.
A perfectly competitive firm determines that its MRP of labor divided the wage equals 1.2. This firm should A. hire more labor. B. pay a lower wage. C. purchase less labor. D. examine the MRP of the other inputs and divide them by their prices. If they are all equal to 1.2, the firm is maximizing profits.
A. hire more labor.
Monopolistic competition is similar to perfect competition because A. in both industry structures, there are no barriers to entry. B. both industry structures have a single seller. C. in both industry structures, long−run profits are likely to be positive. D. in both industry structures, the firm's demand curve is horizontal.
A. in both industry structures, there are no barriers to entry.
Cartels are difficult to maintain in the long run because A. individual members may find it profitable to cheat on agreements. B. cartels are illegal in all industrialized countries. C. entry barriers are insignificant in oligopolistic industries. D. it is more profitable for the industry to charge a lower price and produce more output.
A. individual members may find it profitable to cheat on agreements
According to the capture hypothesis, regulators must take into account A. industry special interests. B. legislators. C. consumers. D. All of the above.
A. industry special interests
For a monopolist, marginal revenue A. is less than price. B. is greater than price. C. is equal to price. D. may be greater than, less than, or equal to price.
A. is less than price.
The market demand curve for labor is A. less elastic than the horizontal summation of the individual firms' demand curves because output price changes as total output changes. B. the vertical summation of the individual firms' demand curves for labor. C. the horizontal summation of the individual firms' demand curves for labor. D. affected by the marginal factor cost of labor.
A. less elastic than the horizontal summation of the individual firms' demand curves because output price changes as total output changes.
For a monopolistic competitor experiencing a short-run loss, price is ________ average total cost and ________ marginal cost. A. less than; greater than B. greater than; greater than C. equal to; less than D. less than; less than
A. less than; greater than
A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.75, marginal revenue is $2.50, and marginal cost is $3.00. This firm is A. making positive profits and is producing too many units to maximize profits. B. operating at a loss and is producing too many units to maximize profits. C. operating at a loss and is producing too few units to maximize profits. D. making positive profits and is maximizing profits.
A. making positive profits and is producing too many units to maximize profits.
For the perfectly competitive firm, the marginal revenue product is A. marginal physical product times the product price. B. the same thing as marginal factor cost. C. marginal physical product times the wage rate. D. the same thing as marginal physical product.
A. marginal physical product times the product price.
Suppose that the objective of a union is to maximize the total dues paid to the union by its membership. Now, consider the case where union dues are a percentage of total earnings of the union membership. Then the union's strategy will be to A. negotiate for the wage level that is consistent with unit elastic demand for labor. B. negotiate for a higher than market wage hike every year through collective bargaining. C.negotiate for the maximum wage rate the employer is willing to pay for the number of workers belonging to the union. D. negotiate for limiting the entry of new workers over time. b. Suppose that the objective of a union is to maximize the total dues paid to the union by its membership. If union dues are paid as a flat amount per union member employed, the union's strategy will be to A. negotiate for the maximum wage rate the employer is willing to pay for the number of workers belonging to the union. B. negotiate for the wage level that is consistent with unit elastic demand for labor. C. negotiate for limiting the entry of new workers over time. D. negotiate for the wage level that is consistent with perfectly elastic demand for labor.
A. negotiate for the wage level that is consistent with unit elastic demand for labor. A. negotiate for the maximum wage rate the employer is willing to pay for the number of workers belonging to the union.
All of the following are possible reasons for the occurrence of oligopolies except A. no impediments to enter or exit the market. B. barriers to entry. C. mergers. D. economies of scale.
A. no impediments to enter or exit the market.
One major difference between oligopoly and perfect competition is that A. oligopolistic firms act interdependently while competitive firms operate independently. B. oligopolistic firms act independently while competitive firms operate interdependently. C. There is no major difference in the two types of firms since they both act interdependently. D. There is no major difference in the two types of firms since they both act independently.
A. oligopolistic firms act interdependently while competitive firms operate independently.
In a zero-sum game A. one player's losses are offset by another player's gains. B. one player has a zero-value payoff while the other has a positive value payoff. C. every player has a zero-value payoff at the beginning of the game. D. every player finishes the game with a zero-value payoff.
A. one player's losses are offset by another player's gains.
Suppose that half of all used cars offered for sale are high-quality autos and the other half are lemons. A consumer is willing to pay $12,000 for a high-quality used car but only $4,000 for a lemon. People who own truly high-quality used cars are only willing to sell at a price of at least 12,000, but people who own lemons are willing to sell at any price at or above $4,000. Because there is a 50-50 chance that a given car up for sale is of either quality, the average amount that a prospective buyer is willing to pay equals $8,000. In this market, A. only lemons will be traded, at a price of $4,000. B. both high-quality cars and lemons will be traded, each at a price of $8,000. C. both high-quality cars and lemons will be traded, at prices of $12,000 and $4,000 respectively. D. only high-quality cars will be traded, at a price of $8,000.
A. only lemons will be traded, at a price of $4,000.
The fact that a monopolistically competitive firm does not produce at the minimum ATC can be viewed as the cost of generating A. product differentiation and variety. B. economies of scale. C. homogeneous products. D. All of the above.
A. product differentiation and variety.
Lemon problems are likely to be more common in industries that sell A. products that have qualities that are difficult for consumers to assess fully. B. products that have qualities that enable consumers to evaluate them even before purchasing. C. products with qualities that are guaranteed to consumers. D. products that consumers must consume regardless of their quality.
A. products that have qualities that are difficult for consumers to assess fully.
The prisoner's dilemma reveals that A. sometimes when individuals act independently in their own self-interest, everyone is worse off than if they had cooperated. B. collusive agreements will always fail. C. nonprice competition is more profitable than price competition. D. the price leadership model does not work.
A. sometimes when individuals act independently in their own self-interest, everyone is worse off than if they had cooperated.
At the beginning of each semester, the university cafeteria posts the prices of its sandwiches. Business students note that as soon as the university posts these prices, the area delis adjust their prices accordingly. This pricing practice may be due to all of the following except A. that the local delis are following a dominant strategy. B. that the university cafeteria and the local delis are engaged in a non-cooperative game, where the local delis are following a tit-for-tat strategy. C. that there may be a tacit collusion between the university cafeteria and the local delis. D. the university cafeteria may be acting as a price leader
A. that the local delis are following a dominant strategy.
The U.S. antitrust law which was the first to hold any person who attempts to monopolize trade or commerce criminally liable is A. the Sherman Antitrust Act of 1890. B. the Robinson-Patman Act of 1936. C. the Clayton Act of 1914. D. the Federal Trade Commission Act of 1914.
A. the Sherman Antitrust Act of 1890.
Why are brand names and advertising important features of monopolistic competition? A. Both of these techniques are needed to compute marginal cost. B. Both of these techniques can be used to increase the demand for the product. C. Both of these techniques will increase the price of the product and reduce the average cost of production. D. Both of these techniques can be used to increase the supply of the product.
B. Both of these techniques can be used to increase the demand for the product.
Which of the following is not true of both firms in monopolistic competition and firms in perfect competition? A. Both types of firms have the possibility of short-run economic profits or losses. B. Both types of firms produce at minimum ATC. C. Both types of firms can earn zero economic profits in long-run equilibrium. D. Both types of firms produce where MC = MR.
B. Both types of firms produce at minimum ATC
Which of the following is an example of social regulation? A. Rate regulation of natural monopolies. B. Clean water regulations. C. FAA supervision of the airline industry. D. Legislation against deceptive business practices in a specific industry.
B. Clean water regulations.
A bilateral monopoly refers to a monopolist that only sells two products. A. True B. False
B. False
A monopolistic competitor producing an information product will set the product's price using marginal cost pricing. A. True B. False
B. False
All U.S. businesses are subject to antitrust laws. A. True B. False
B. False
Changes in working conditions in an industry can affect its labor demand curve but not its labor supply curve. A. True B. False
B. False
Monopolistic competition is the most common industry structure in two-sided markets. A. True B. False
B. False
Once a cartel agreement has been made, it is rare for the agreement to break down. A. True B. False
B. False
Social regulation is designed to cover specific industries. A. True B. False
B. False
The marginal revenue curve for a monopolist always lies above the downward-sloping product demand curve. A. True B. False
B. False
The more it costs to enter a monopolistically competitive market, the more a firm currently in that market must worry about losing business. A. True B. False
B. False
The scope of the government's role as regulator of natural monopolies has increased with the expansion of natural monopolies in the electricity, natural gas, and telecommunications industries. A. True B. False
B. False
When firms engage in creative response to regulations, this amplifies the regulation's effects. A. True B. False
B. False
Which of the following is a provision of the Robinson−Patman Act? A. Forbids restraint of trade and attempts to monopolize markets. B. Forbids price discrimination that substantially reduces competition. C. Outlaws predatory pricing and deceptive business practices. D. Forbids specific practices that restrain trade, exclusive dealerships, and some corporate stock ownership.
B. Forbids price discrimination that substantially reduces competition.
Which of the following is an example of a credence good? A. A restaurant meal. B. Legal advice. C. A music CD. D. A t−shirt.
B. Legal advice.
For a firm facing a perfectly elastic supply of labor, the employment of workers will continue until A. marginal factor cost = wage rate. B. MRP = wage rate. C. MPP = MR. D. All of the above.
B. MRP = wage rate.
Each firm purchasing labor in a perfectly competitive market can purchase all of the input it wants at the going market wage. A. False B. True
B. True
Each time a monopsonist buyer of labor wants to hire more workers, it must raise wage rates. A. False B. True
B. True
If a perfectly competitive industry in the output market suddenly became one in which there is monopoly in the output market, the amount of employment would fall. A. False B. True
B. True
If all firms in an industry form a cartel, they act as a single producer and collude to charge the profit-maximizing price that would be charged by a monopoly. A. False B. True
B. True
It is a typical Christmas electronics shopping season, and makers of ultra-high-definition TVs (UHDTVs) are marketing the latest available models through their own websites as well as via retailers such as Best Buy and Walmart. Each manufacturer offers its own unique versions of UHDTVs in differing arrays of shapes and sizes. As usual, each is hoping to maintain a stream of economic profits earned since it first introduced these most recent models late last year or perhaps just a few months before Christmas. Nevertheless, as sales figures arrive at the headquarters of companies such as LG, Samsung, Panasonic, and Sony, it is clear that most of the companies will end up earning only a normal rate of return this year. How can makers of UHDTVs earn economic profits during the first few months after the introduction of new models? A. New models create product differentiation that increases demand and raises prices above average total cost. Thus, firms will earn positive economic profits in the long run. B. New models create product differentiation that increases demand and raises prices above average total cost. Thus, firms will earn positive economic profits in the short run. C. New models create product homogeneity that increases demand and raises prices above average total cost. Thus, firms will earn positive economic profits in the short run. D. New models create product homogeneity that increases demand and raises prices above average total cost. Thus, firms will earn positive economic profits in the long run.
B. New models create product differentiation that increases demand and raises prices above average total cost. Thus, firms will earn positive economic profits in the short run.
The current market wage rate is $20, the rental rate of land is $200 per unit, and the rental rate of capital is $500. Production managers at the firm find that under their current allocation of factors of production, the marginal revenue product of labor is $160, the marginal revenue product of land is $1,600, and the marginal revenue product of capital is $1,500. Is the firm maximizing profit? A. No. The marginal factor cost of each input is not equal. B. No. The marginal revenue product per dollar spent on each input is not equal. C. No. The marginal revenue product of each input is not equal. D. Yes. The firm is maximizing profits.
B. No. The marginal revenue product per dollar spent on each input is not equal.
What economic forces result in the dissipation of economic profits earned by manufacturers of UHDTVs? A. Positive profits induce new firms to enter the market causing existing firms' demand to increase, which lowers prices toward average variable cost. B. Positive profits induce new firms to enter the market causing existing firms' demand to fall, which lowers prices toward average total cost. C. Positive profits induce new firms to enter the market causing existing firms' demand to fall, which lowers prices toward average variable cost. D. Positive profits induce new firms to enter the market causing existing firms' demand to increase, which lowers prices toward average total cost.
B. Positive profits induce new firms to enter the market causing existing firms' demand to fall, which lowers prices toward average total cost.
Which of the following characteristics applies to a monopolistically competitive industry? A. For the product being produced, consumers have few substitutes from which to choose. B. Products are similar, but not identical, to competitors' products. C. Firms face a horizontal demand curve. D. The products produced by competing firms are perfect subsitiutes for each other.
B. Products are similar, but not identical, to competitors' products.
Which of the following are exempt from antitrust regulation? A. The automobile industry. B. Professional baseball. C. The communications industry. D. The steel industry.
B. Professional baseball.
The payoff matrix to the right shows the profits two firms can make using alternative pricing strategies. What are the firms' pricing decisions? Does each firm have a dominant strategy? Explain briefly. A. The dominant strategy for each firm is to charge a high price because if one firm chooses either a high or low price, the other firm will always choose a high price to make more. B. The dominant strategy for each firm is to charge a low price because if one firm chooses either a high or low price, the other firm will always choose a low price to make more. C. Neither firm has a dominant strategy because it is unlikely they could act together to charge higher prices and make more. D. The dominant strategy for each firm is to collude and charge a high price so that each will make more.
B. The dominant strategy for each firm is to charge a low price because if one firm chooses either a high or low price, the other firm will always choose a low price to make more.
What does the long-run price equal for an informational product? A. The price is the same as it would be if the firm were a monopoly. B. The price equals average total cost. C. The price equals marginal cost. D. It is not possible to speculate because of the unique nature of an informational product.
B. The price equals average total cost.
What is the appropriate type of two-sided market where Paypal.com operates as a platform firm? (Hint: In some cases, you may wish to check out the firms' Web sites to assist in answering this question.) A. Shared−input market. B. Transaction− based market. C. Matchmaking market. D. Audience-making market
B. Transaction− based market.
A relevant market refers to a group of firms' products that are closely substitutible for one another and available to consumers in a particular geographic area. A. False B. True
B. True
At present, less than 7 percent of workers in the private sector in the United States belong to unions. A. False B. True
B. True
When assessing a potential horizontal merger, which of the following changes will raise antitrust concerns with federal enforcement agencies? A. a combined HHI change exceeding 150 and a postmerger HHI above 1,500 B. a combined HHI change exceeding 100 and a postmerger HHI above 2,500 C. a combined HHI change exceeding 200 and a postmerger HHI above 1,000 D. a combined HHI change exceeding 50 and a postmerger HHI above 2,000
B. a combined HHI change exceeding 100 and a postmerger HHI above 2,500
A positive market feedback refers to A. a tendency for the consumers to buy a larger quantity of the product when its price decreases. B. a tendency for a good or service to come into favor with additional consumers because other consumers have chosen to buy the item. C. a tendency for a good or service to fall out of favor with more consumers because other consumers have stopped buying the item. D. a tendency for the consumers to buy a larger quantity of the product when their income increases
B. a tendency for a good or service to come into favor with additional consumers because other consumers have chosen to buy the item.
The MRP curve of the monopolist is A. never less elastic than the MRP curve of the perfect competitor. B. always less elastic than the MRP curve of the perfect competitor. C. always more unit elastic than the MRP curve of the perfect competitor. D. None of the above.
B. always less elastic than the MRP curve of the perfect competitor.
Suppose conditions in the industry change in such a way that the amount that each firm makes if it charges a high price when the other firm charges a low price decreases from $2 million to $1 million. This is shown in the new payoff matrix to the right. Are the firms' pricing decisions altered by this change and, if so, in what way? Explain briefly. If the amount that each firm makes if it charges a high price when the other firm charges a low price decreases from $2 million to $1 million, then A. both firms will maintain their decisions to charge high prices because each can make more by doing so. B. both firms will maintain their decisions to charge low prices because each can make more by doing so. C. Firm 2 will continue to charge a low price to make more, while Firm 1 will make more if it charges a higher price. D. Firm 1 will continue to charge a low price to make more, while Firm 2 will make more if it charges a higher price.
B. both firms will maintain their decisions to charge low prices because each can make more by doing so.
Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the A. seller and the government. B. buyer and the seller. C. buyer and the government. D. taxpayer and the government.
B. buyer and the seller.
A firm that produces an information product will A. earn positive economic profits in the long run. B. earn zero economic profits in the long run. C. earn negative or zero economic profits in the long run. D. earn positive or zero economic profits in the long run.
B. earn zero economic profits in the long run.
The most common reason that oligopolies exist is A. diminishing marginal returns. B. economies of scale. C. there are a large number of firms. D. regulation.
B. economies of scale.
c. To regulate the problem of natural monopoly, a regulator could use A. only the cost-of-service regulation where price is set equal to a normal rate of return on investment and profit is lower. B. either the cost-of-service regulation where price is set equal to average cost, or a rate-of-return regulation where price is set equal to a normal rate of return on investment. C. neither the cost-of-service regulation where price is set equal to marginal cost nor a rate-of-return regulation where price is set equal to a high rate of return on investment. D. only the rate-of-return regulation where price is set equal to average cost and profit is zero.
B. either the cost-of-service regulation where price is set equal to average cost, or a rate-of-return regulation where price is set equal to a normal rate of return on investment.
Local cable television companies are sometimes granted monopoly rights to service a particular territory of a metropolitan area. The companies typically pay special taxes and licensing fees to local municipalities. A local municipality gives monopoly rights to a cable company because these industries A. have constant average cost of production as their output increases; a characteristic of monopolistic competition. B. experience declines in their average cost of production as their output increases; a characteristic of natural monopoly. C. experience increases in their average cost of production as their output increases; a characteristic of a single-price monopoly. D. experience declines in their marginal cost of production as their output increases; a characteristic of duopoly.
B. experience declines in their average cost of production as their output increases; a characteristic of natural monopoly.
Suppose that a business has developed a very high-quality product and operates more efficiently in producing that product than any other potential competitor. As a consequence, at present it is the only seller of this product, for which there are few close substitutes. This firm A. is in violation of U.S. antitrust laws because there have been "unfair or deceptive acts or practices in commerce." B. is not in violation of U.S. antitrust laws because there has not been any "willful acquisition or maintenance of monopoly power" in the relevant market. C. is in violation of U.S. antitrust laws because there has been an attempt to monopolize and willfully acquire monopoly power. D. may or may not be in violation of U.S. antitrust laws because antitrust laws are so vague that their correct interpretation can only come from the Supreme Court.
B. is not in violation of U.S. antitrust laws because there has not been any "willful acquisition or maintenance of monopoly power" in the relevant market.
In the long run, monopolistically competitive firms A. make zero accounting profits. B. make zero economic profits. C. make positive economic profits. D. can make either positive economic profits or zero economic profits, and always make positive accounting profits.
B. make zero economic profits.
The legal system typically defines monopoly by looking at a firm's A. advertising budget. B. market share. C. sales revenues. D. adjusted taxable income.
B. market share.
A local cable company, the sole provider of cable television service, is regulated by the municipal government. The owner of the company claims that she is normally opposed to regulation by government, but asserts that regulation is necessary because local residents would not want a large number of different cable crisscrossing the city. The owner is defending the regulation by the city because A. regulation will automatically lower prices bringing about an efficient allocation of resources. B. regulation will prevent other competing firms from entering the market. C. regulation will keep price less than marginal cost and make cable services more affordable. D. regulation will ensure that only firms that provide the best service will remain in the market.
B. regulation will prevent other competing firms from entering the market.
In which industry is monopolistic competition most likely to be found? A. agriculture B. retail trade C. utilities D. mining
B. retail trade
In the short run, a monopolistically competitive firm will A. not advertise because the effects will not be realized until the long run. B. select the rate of output where marginal revenue equals marginal cost. C. select the rate of output where price equals marginal cost. D. make a profit.
B. select the rate of output where marginal revenue equals marginal cost.
A monopolist's demand curve for labor A. slopes upward because monopolists use more capital than do perfectly competitive firms. B. slopes down because of the law of diminishing marginal returns and because the monopolist must lower prices to sell additional units of the good. C. is horizontal even though the demand curve for labor for a competitive firm is downward sloping. D. slopes down for the same reason as the demand curve for labor of a perfectly competitive firm.
B. slopes down because of the law of diminishing marginal returns and because the monopolist must lower prices to sell additional units of the good.
A profit maximizing firm will hire inputs in combinations A. that minimize the prices of inputs. B. such that the marginal physical product per last dollar spent on each factor of production is equalized. C. that equate marginal revenue products of each input. D. that equate marginal physical products of each input.
B. such that the marginal physical product per last dollar spent on each factor of production is equalized.
The federal regulatory agency that has jurisdiction over labor markets is A. the Occupational Safety and Health Administration. B. the Equal Employment Opportunity Commission. C. the Federal Trade Commission. D. the Securities and Exchange Commission.
B. the Equal Employment Opportunity Commission.
A firm complains that another firm's advertising is misleading. The firm would send its complaint to A. the Justice Department. B. the Federal Trade Commission. C. the Robinson-Patman Agency. D. the EPA.
B. the Federal Trade Commission.
A few years ago, a food retailer called Whole Foods sought to purchase Wild Oats, a competitor in the market for organic foods. When the Federal Trade Commission (FTC) sought to block this merger on antitrust grounds, FTC officials argued that such a merger would dramatically increase concentration in the market for "premium organic foods." Whole Foods' counterargument was that it considered itself to be part of the broadly defined supermarket industry that includes retailers such as Albertson's, Kroger, and Safeway. The key issue of antitrust regulation involved in this dispute, is A. predatory pricing. B. the definition of the market. C. unfair business practices. D. the restraint of trade.
B. the definition of the market.
If the average total costs are the same for a perfectly competitive firm and a monopolistically competitive firm, then we know that A. both will produce at the minimum points of their average total cost curves. B. the monopolistically competitive firm will produce fewer units than the perfectly competitive firm. C. the monopolistically competitive firm will produce more units than the perfectly competitive firm. D. Any of the above are possible.
B. the monopolistically competitive firm will produce fewer units than the perfectly competitive firm.
The primary purpose of economic regulation is A. to control the quality of service provided by a monopolist. B. to control the price that regulated enterprises are allowed to charge. C. to force a firm to produce at the point where marginal cost equals marginal revenue. D. to focus on the impact of production on the environment and society, the working conditions under which goods and services are produced, and sometimes the physical attributes of goods.
B. to control the price that regulated enterprises are allowed to charge.
When a firm is selling an experience good it is more likely to A. be an information product. B. use persuasive advertising. C. earn a positive economic profit. D. use informational advertising.
B. use persuasive advertising.
A package delivery company provides both overnight and second-day delivery services. It charges almost twice as much to deliver an overnight package to any world location as it does to deliver the same package to the same location in two days. Often, second-day packages arrive at company warehouses in destination cities by the next day, but drivers intentionally do not deliver these packages until the following day. This business practice is called A. bundling. B. versioning. C. price discrimination. D. tie-in sales.
B. versioning.
Using the payoff matrix, and assuming no collusion between X and Y, what is the likely pricing outcome? A. Both firms will set the price at $40. B. Firm X will charge $35 and firm Y will charge $40. C. Both firms will set the price at $35. D. Firm X will charge $40 and firm Y will charge $35.
C. Both firms will set the price at $35.
Network effects can cause the demand for a product either to expand or to contract relative to what it would be if there were no network effects because of A. negative market feedback in which a downward spiral of product sales occur. B. positive market feedback when an industry's product catches on with consumers. C. Both of the above. D. None of the above.
C. Both of the above.
What is a cartel? A. It is an association of producers in an industry that agree to set common prices to prevent competition. B. It is an association of producers in an industry that agree to set common prices to promote competition. C. It is an association of producers in an industry that agree to set common prices and output quotas to prevent competition. D. It is an association of producers in an industry that agree to set common prices and output quotas to promote competition.
C. It is an association of producers in an industry that agree to set common prices and output quotas to prevent competition.
Which of the following is not an issue in enforcing antitrust laws? A. International competition. B. The laws are vague. C. Marginal cost pricing. D. Defining the relevant market.
C. Marginal cost pricing.
What is the only market structure that does not have non-price competition? A. Monopoly. B. Monopolistic competition. C. Perfect Competition. D. Oligopoly.
C. Perfect Competition.
What is the appropriate type of two-sided market where FreeBSD.com operates as a platform firm? (Hint: In some cases, you may wish to check out the firms' Web sites to assist in answering this question.) A. Audience−making market. B. Matchmaking market. C. Shared−input market. D. Transaction-based market
C. Shared−input market
Consider the following payoff matrix. Firm 1 and Firm 2 are seeking to choose between Format A and Format B for their products. Which of the following statements best describes their profit-maximization? (up to 4 mil.) A. Since there are network effects, the firms would maximize profits if they both produced format A. B. Since there are network effects, Firm 1 would maximize its profit by producing format B and Firm 2 would maximize its profit by producing format A. C. Since there are no network effects, Firm 1 would maximize its profit by producing format B and Firm 2 would maximize its profit by producing format A. D. Since there are no network effects, the firms would maximize profits if they both produced format A.
C. Since there are no network effects, Firm 1 would maximize its profit by producing format B and Firm 2 would maximize its profit by producing format A.
Which of the following is not a characteristic of an oligopoly? A. A small number of sellers. B. Some barriers to entry. C. Strategic independence. D. Some market power.
C. Strategic independence.
Which of the following statements explains why the MRP curve is the firm's labor demand curve? A. The MRP curve shows how many units of labor will be hired at different product prices. B. The MRP curve shows how many units of the product will be produced at different wage rates. C. The MRP curve shows how many units of labor will be hired at different input prices. D. All of the above.
C. The MRP curve shows how many units of labor will be hired at different input prices.
In a perfectly competitive market, price equals marginal cost, but this condition is not satisfied for the firm with the revenue and cost conditions depicted in the figure on the right. In the long run, what would happen if the government decided to require the firm in the figure to charge a price equal to marginal cost at the firm's long-run output rate? A. The firm will expand its output to 160 units. B. The firm will earn zero economic profit. C. The firm will incur a loss of $8 per unit and this and other firms will leave the industry. D. The firm will increase its profit to $8 per unit and new firms will enter the industry.
C. The firm will incur a loss of $8 per unit and this and other firms will leave the industry.
One consequence of asymmetric information in the used-car market, if left unresolved, is the higher probability of A. a rising quality of used cars in the market. B. used-car buyers willing to pay higher prices. C. a declining quality of used cars in the market. D. no used cars being sold.
C. a declining quality of used cars in the market.
All of the following are a fundamental characteristic of oligopoly except A. economies of scale. B. horizontal mergers. C. a homogeneous product. D. barriers to entry.
C. a homogeneous product.
A silk necktie represents A. a credence good, since people must actually consume before they can determine their qualities. B. an experience good, since people must actually consume before they can determine their qualities. C. a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. D. an experience good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. E. a search good, since people must actually consume before they can determine their qualities. F. a credence good, with qualities that might be difficult for consumers lacking expertise to assess without assistance.
C. a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase.
All of the following can cause the demand curve for labor to shift to the right except A. an increase in the productivity of labor. B. an increase in the price of the final product. C. an increase in the supply of labor. D. an increase in the demand for the final product.
C. an increase in the supply of labor.
The type of two-sided market in which media platforms link advertisers to potential customers is called A. a shared-input market. B. a transaction-based market. C. an audience-seeking market. D. a matchmaking market.
C. an audience-seeking market.
A natural monopoly exists when A. a firm is able to make long-run profits without inducing entry by other firms. B. there is pure monopoly and the government grants an exclusive license to the firm. C. a firm's long-run average cost curve is sloping down when it intersects the market demand curve. D. a firm's demand curve is downward sloping.
C. a firm's long-run average cost curve is sloping down when it intersects the market demand curve.
A cost-benefit test of proposed regulation should A. be eliminated since regulation has no costs. B. be eliminated since regulation has no benefits. C. be made to demonstrate net positive benefits or else the regulation should not be enacted. D. None of the above.
C. be made to demonstrate net positive benefits or else the regulation should not be enacted.
A firm that sells both Internet-security software and computer antivirus software will sell the antivirus software as a stand-alone product. It will only sell the Internet-security software to consumers in a combined package that also includes the antivirus software. This business practice is called A. versioning. B. entry limit pricing. C. bundling. D. price discrimination.
C. bundling.
If the MRP of labor is less than the wage rate, the perfectly competitive firm will A. increase employment. B. raise the wage rate. C. decrease employment. D. maintain the current level of employment.
C. decrease employment.
Advertising targeted at specific consumers, typically in the form of mail via the postal service, telephone calls, or e-mail messages, is categorized as A. global marketing. B. interactive marketing. C. direct marketing. D. mass marketing.
C. direct marketing.
The number of firms in a monopolistically competitive market means that A. all firms will have substantial monopoly power since there are so few firms in the industry. B. firms will be dependent on other firms to make output and price changes since there are many firms in the industry. C. each firm has a relatively small share of the total market since there are many firms in the industry. D. firms will likely collude since there are only a few firms in the industry.
C. each firm has a relatively small share of the total market since there are many firms in the industry.
A perfectly competitive firm that hires labor and sells its product in purely competitive markets will A. have a horizontal supply curve for its product. B. face a downward-sloping demand curve for its product. C. have a downward-sloping demand curve for labor. D. have a horizontal demand curve for labor.
C. have a downward-sloping demand curve for labor.
Information products use information-intensive inputs and are characterized by A. no short-run fixed costs, and low marginal costs. B. low fixed costs and low marginal costs. C. high fixed costs but low marginal costs. D. low fixed costs but high marginal costs. E. high fixed costs and high marginal costs.
C. high fixed costs but low marginal costs.
Under bilateral monopoly, the wage rate is A. equal to the competitive wage rate. B. lower than the competitive wage rate. C. indeterminate. D. higher than the competitive wage rate.
C. indeterminate.
The monopolistically competitive firm at a level of output of Q1 in the diagram is A. not in long-run equilibrium. B. earning a positive economic profit. C. in long-run equilibrium. D. earning negative economic profits.
C. in long-run equilibrium.
The table at the right shows recent data regarding worldwide market shares of producers of inkjet printers. Use the table to answer the following questions. a. Suppose that consumer demands for inkjet printers, the prices of which are readily observable in office supply outlets and at Internet sites, are growing at a stable pace. Discuss whether circumstances are favorable to an effort by firms in this industry to form a cartel. As long as their products are A. not too similar, conditions are favorable to form a cartel since there are relatively large number of firms and prices are observable. B. not too differentiated, conditions are favorable to form a cartel since there are relatively large number of firms and prices are observable. C. not too differentiated, conditions are favorable to form a cartel since there are relatively few firms and prices are observable. D. not too similar, conditions are favorable to form a cartel since there are relatively few firms and prices are observable. b. If the firms successfully establish a cartel, why will there naturally be pressures for the cartel to break down, either from within or from outside? A. in the cartel, especially the large ones, have an incentive to cheat by expanding output at the higher cartel price, and positive economic profits will induce non cartel firms to enter the market. B. Firms in the cartel, especially the small ones, have an incentive to cheat by expanding output at the higher cartel price, and positive economic profits will induce non cartel firms to enter the market. C. Firms in the cartel, especially the small ones, have an incentive to cheat by expanding output at the higher cartel price, and positive economic profits will induce non cartel firms to start a price war. D. Firms in the cartel, especially the large ones, have an incentive to cheat by expanding output at the higher cartel price, and positive economic profits will induce non cartel firms to start a price war.
C. not too differentiated, conditions are favorable to form a cartel since there are relatively few firms and prices are observable B. Firms in the cartel, especially the small ones, have an incentive to cheat by expanding output at the higher cartel price, and positive economic profits will induce non cartel firms to enter the market.
The difference between monopolistic competition and pure monopoly is that in comparison to monopolistic competition, pure monopoly has A. at least one competitor, a patented product, little price control, and few entry barriers. B. at least one firm, a patented product, some price control, and few entry barriers. C. one firm, a unique product, price control, and entry barriers. D. one firm, a patented product, some price control, and entry barriers.
C. one firm, a unique product, price control, and entry barriers.
A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.75, price is $4.50, marginal revenue is $2.00, and marginal cost is $2.50. This firm is A. operating at a loss and is maximizing profits. B. making positive profits and is producing too few units to maximize profits. C. operating at a loss and is producing too many units to maximize profits. D. making positive profits and is producing too many units to maximize profits.
C. operating at a loss and is producing too many units to maximize profits.
If there is no product differentiation at all, then the individual firm has a demand curve that is A. slightly downward sloping and identical the firm in monopolistic competition. B. perfectly inelastic and identical to the firm in perfect competition. C. perfectly elastic and identical to the firm in perfect competition. D. unit elastic and identical to the firm in perfect competition.
C. perfectly elastic and identical to the firm in perfect competition.
Which of the following is true regarding the view of this type of business practice (bundling) by U.S. antitrust authorities? A. Antitrust authorities are very tolerant of this practice. B. This is viewed as similar to versioning. C. practice enables a company to engage in price discrimination by charging different prices to different groups. D. All of the above are true.
C. practice enables a company to engage in price discrimination by charging different prices to different groups.
The greater the monopolistically competitive firm's success at product differentiation the lower is (are) the firm's A. opportunities for collusive behavior. B. options for altering product price. C. price elasticity of demand. D. None of the above are correct.
C. price elasticity of demand.
In practice, regulators generally A. allow firms to do whatever they want. B. require firms to make losses. C. require firms to set price equal to average cost. D. require firms to set price equal to marginal cost
C. require firms to set price equal to average cost.
Research into genetically modified crops has led to significant productivity gains for countries such as the United States that employ these techniques. Countries such as the European Union member nations, however, have imposed controls on the import of these products, citing concern for public health. The European Union's regulation of genetically modified crops is an example of A. capture hypothesis, if their goal is to protect their population from potential health hazards. B. moral hazard problem if they want to reduce their risks of getting ill. C. share-the-gains, share-the-pains hypothesis, if they have genuine health concerns. D. lemons problem because there is a potential for asymmetric information.
C. share-the-gains, share-the-pains hypothesis, if they have genuine health concerns.
In order to reduce the lemons problem, government regulation should be in the form of A. neither social nor economic regulation because the lemons problem cannot be eliminated. B. a combination of social and economic regulation to get rid of all the lemons from the market. C. social regulation, so as to minimize adverse market spillovers. D. economic regulation, so as to improve the quality of the products sold.
C. social regulation, so as to minimize adverse market spillovers.
The downward slope of the demand curve of a monopolistically competitive firm implies that the firm has A. no monopoly power over price, and therefore advertising will not increase profits. B. constant returns to scale. C. some monopoly power over price, and therefore advertising may increase profits. D. increasing returns to scale.
C. some monopoly power over price, and therefore advertising may increase profits.
The first legislation enacted to control the creation and growth of monopoly in the U.S. was A. the Federal Trade Commission Act. B. the Robinson-Patman Act. C. the Sherman Antitrust Act. D. the Clayton Act.
C. the Sherman Antitrust Act.
The theory that regulators often end up adopting the views of the regulated is known as A. the deregulation hypothesis. B. the share-the-gains, share-the-pains hypothesis. C. the capture hypothesis. D. None of the above.
C. the capture hypothesis.
According to game theory, the strategic interaction between two or more individuals can take the form of A. a cooperative game. B. a zero-sum game. C. a non-cooperative game. D. All of the above are correct.
D. All of the above are correct.
The monopolist hires fewer workers than the perfect competitor because A. the MRP curve for the monopolist is above the MRP curve of the perfect competitor. B. product price must rise for the monopolist to sell more. C. the monopolist produces less than the perfect competitor and needs less labor, other things being equal. D. None of the above.
C. the monopolist produces less than the perfect competitor and needs less labor, other things being equal.
The largest components of federal regulation are A. consumer safety and workplace conditions. B. finance and banking and the environment. C. the transportation sector and the environment. D. the transportation sector and the banking sector.
C. the transportation sector and the environment.
If a firm is selling a search good it is more likely to A. earn a positive economic profit. B. use persuasive advertising. C. use informational advertising. D. be an information product.
C. use informational advertising.
Selling products in slightly altered forms to different groups of customers is known as ________, and it is ________ to constitute a form of price discrimination by U.S. antitrust authorities. A. bundling; perceived B. bundling; not perceived C. versioning, not perceived D. versioning; perceived
C. versioning, not perceived
A positive-sum game occurs A. when the gains received by one player are exactly offset by the losses of the other. B. whenever any of the values in the payoff matrix are positive. C. when the sum of the two players' outcomes is positive. D. whenever the payoffs to the two players are equal.
C. when the sum of the two players' outcomes is positive.
Margianl Physical Product
Change in total physical output
Classify each of the following as an example of direct (D), interactive (I), and/or mass marketing (MM). A mortgage company targets a list of specific low risk borrowers for a barrage of e-mail messages touting its low interest rates and fees. _____ The sales force of a pharmaceutical company visits physicians' offices to promote new medications and to answer physicians' questions about treatment options and possible side effects. _____ An online bookseller pays fees to an Internet search engine to post banner ads relating to each search topic chosen by someone conducting a search; in part this helps promote the bookseller's brand, but clicking on the banner ad also directs the person to a Web page displaying books on the topic that are available for purchase. _____ A national rental car chain runs advertisements on all of the nation's major television networks. _____
D D I MM
A firm is minimizing costs of production. The wage rate is $125 per worker, and the relevant price of capital is $ 500 per unit. The price of the final product is $25, and the marginal product of labor at the cost-minimizing quantity of labor is 50. The marginal product of capital is A. 5,000 units. B. 50 units. C. 5 units. D. 200 units.
D. 200 units
How many workers will this firm employ if the weekly wage is $300? A. 0 B. 27 C. 28 D. 29
D. 29
Suppose that a company based in Dallas, Texas, confronts only four other rival firms. Its own market share is 26 percent, which ties it with the other largest producer and seller in the industry. The other three firms each have a 16.00 percent market share. What is the four-firm concentration ratio for this industry? The four-firm concentration ratio for this industry is A. 32.0 percent. B. 74.0 percent. C. 52.0 percent. D. 84.0 percent.
D. 84.0 percent.
Suppose that a company based in Dallas, Texas, initially confronts only four other rival firms. Its own market share is 31 percent, which ties it with the other largest producer and seller in the industry. The market share of each of the other three firms is 12.67 percent. Then a sixth firm, located in Cleveland, Ohio, enters the same industry. The new firm captures 6.33percent market share, and the market share of one of the smallest three original incumbents declines to 6.33 percent as well. After the Cleveland firm's entry into the industry, what are the values of the four-firm concentration ratio and of the Herfindahl-Hirschman index? After the Cleveland firm's entry into the industry, the four-firm concentration ratio for this industry is A. 62.7 percent. B. 81.0 percent. C. 74.7 percent. D. 87.3 percent.
D. 87.3 percent.
How can an oligopoly form when there are network effects and market feedback? A. Firms will engage in limit pricing. B. Firms will successfully drive out their competitors when they pick a market leader and match any price changes made by the leader. C. Firms will invest in excess productive capacity to signal other firms that they can outlast their competitors in a price war. D. A few firms may be able to capture most of the growth in demand that is caused by positive market feedback.
D. A few firms may be able to capture most of the growth in demand that is caused by positive market feedback.
Which of the following is not one of the conditions that make it more likely that firms will be able to coordinate their efforts to restrain output and detect cheating? A. Prices are easily observable. B. Firms in the industry produce nearly identical products. C. A small number of firms in the industry. D. Market demand tends to be volatile.
D. Market demand tends to be volatile.
What is the appropriate type of two-sided market where Realtor.com operates as a platform firm? A. Audience−making market. B. Transaction− based market. C. Shared−input market. D. Matchmaking market
D. Matchmaking market
Which of the following is an explanation of the share−the−gains, share−the−pains theory? A. People who have been in an industry are most likely to be asked to be regulators of the industry. B. In some markets, sellers have more information about products than buyers. C. When products have too many warning labels, consumers may not read any of them. D. Regulators who are interested in keeping their jobs must please both the industry and consumers
D. Regulators who are interested in keeping their jobs must please both the industry and consumers
Which antitrust law has two main provisions, one against conspiring with others to restrict competition and the other making it a felony to monopolize or attempt to monopolize? A. Federal Trade Commission Act B. Robinson-Patman Act C. Clayton Act D. Sherman Act
D. Sherman Act
Which of the following statements explains why the marginal cost pricing rule results in an economic loss for a natural monopoly? A. Marginal cost is constant and equal to price. B. The demand curve is downward sloping; therefore, price falls as quantity increases. C. A firm's marginal revenue is always less than its price. D. The ATC curve is downward sloping; therefore, marginal cost is lower than average total cost.
D. The ATC curve is downward sloping; therefore, marginal cost is lower than average total cost.
Separation of the production of electricity from its delivery has led to considerable deregulation of producers. a. Which of the following statements is true regarding the monopoly power in electricity industries? A. The production of electricity is most susceptible to natural monopoly because the producers of electricity have exclusive ownership of the wire networks. B. The distribution of electricity has no economies of scale but the production of electricity has significant economies of scale. C. The electricity industries are treated as network monopolies as the average cost of producing and distributing electricity declines as the output increases. D. The distribution of electricity is most susceptible to natural monopoly because there are economies of scale associated with the distribution networks or grids.
D. The distribution of electricity is most susceptible to natural monopoly because there are economies of scale associated with the distribution networks or grids.
Which of the following characteristics is true for both perfectly competitive and monopolistically competitive firms in the long run? A. Price elasticity of demand is infinite. B. Price equals marginal cost. C. Price equals minimum average total cost. D. There are zero economic profits.
D. There are zero economic profits.
Psychotherapy represents A. an experience good, since people must actually consume before they can determine their qualities. B. a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. C. a search good, since people must actually consume before they can determine their qualities. D. a credence good, one with qualities that might be difficult for consumers lacking expertise to assess without assistance. E. an experience good, possessing qualities that are relatively easy for consumers to assess in advance of their purchase. F. a credence good, since people must actually consume before they can determine their qualities.
D. a credence good, one with qualities that might be difficult for consumers lacking expertise to assess without assistance.
A situation where a consumer's willingness to use an item depends on how many others use it is A. price-leadership. B. a positive-sum game. C. a vertical merger. D. a network effect.
D. a network effect.
Asymmetric information refers to a situation in which A. producers and consumers exchange information. B. producers and consumers have identical information. C. a consumer has product information that the producer lacks. D. a producer has product information that the consumer lacks.
D. a producer has product information that the consumer lacks.
A wool overcoat represents A. an experience good, since it possess qualities that are relatively easy for consumers to assess in advance of their purchase. B. a search good, since people must actually consume before they can determine their qualities. C. a credence good, since people must actually consume before they can determine their qualities. D. a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. E. an experience good, since people must actually consume before they can determine their qualities. F. a credence good, since it possess qualities that are relatively easy for consumers to assess in advance of their purchase.
D. a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase.
Research into genetically modified crops has led to significant productivity gains for countries such as the United States that employ these techniques. Countries such as the European Union member nations, however, have imposed controls on the import of these products, citing concern for public health. Given the situation, the European Union's regulation of genetically modified crops is A. an economic regulation. B. a rate of return regulation. C. a cost of service regulation. D. a social regulation.
D. a social regulation.
The marginal factor cost curve is ________ whenever the supply curve is upward sloping. A. the same as the supply curve B. below the supply curve C. nonexistent D. above the supply curve
D. above the supply curve
Athletic socks represent A. an experience good, since people must actually consume before they can determine their qualities. B. a search good, since people must actually consume before they can determine their qualities. C. a credence good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. D. an experience good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. E. a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. F. a credence good, since people must actually consume before they can determine their qualities.
D. an experience good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase.
Assume that every time you wanted to take this quiz you were charged a fee. The publisher's cost for developing the quizzes and making them available does not vary with the number of times you or anyone else takes the quizzes. These quizzes A. will have increasing marginal cost for the publisher. B. are a search good. C. will have a U-shaped average total cost curve for the publisher. D. are known as an informational product.
D. are known as an informational product.
The four types of two-sided markets are _________ markets, __________ markets, __________ markets, and __________ markets. A. health services; matchmaking; transaction-based; shared-input. B. audience-making; wholesalers; transaction-based; shared-input. C. audience-making; matchmaking; transaction-based; government services. D. audience-making; matchmaking; transaction-based; shared-input
D. audience-making; matchmaking; transaction-based; shared-input
b. Suppose there is an actual natural monopoly in the electricity industry. In that case, the preferred method of regulating these industries should be A. marginal cost pricing because the natural monopolies will have no incentive to produce if price is equal to average cost. B. the marginal cost pricing because marginal cost is less than average cost and so the market price remains low. C. marginal cost pricing because marginal cost is more than average cost and the firms make a higher profit. D. average cost pricing because the firms will cover all their costs if the price is set equal to average cost.
D. average cost pricing because the firms will cover all their costs if the price is set equal to average cost.
Last weekend, Bob attended the university football game. At the opening kickoff, the crowd stood up. Bob therefore had to stand up as well to see the game. In this case, Bob was participating in A. a dynamic game of strategy, which is played over time. B. a cooperative game of strategy, where participants collectively choose their strategy to maximize their joint payoffs. C. an NCAA football game. D. a non-cooperative game of strategy, where participants independently choose their strategy to maximize their payoffs. When Bob stood up as a response to the standing crowd, he was A. following a tit-for-tat strategy. B. following a dominated strategy. C. following a dominant strategy. D. perfecting a "wave."
D. a non-cooperative game of strategy, where participants independently choose their strategy to maximize their payoffs. A. following a tit-for-tat strategy.
If the industry shown in the graph to the right unionizes, the wage rate will be A. $25. B. $15. C. $45. D. between $12.50 and $25.
D. between $12.50 and $25.
Search goods are goods that consumers A. find difficult to locate. B. must consume in order to assess properly. C. find difficult to assess properly. D. can easily evaluate before consumption.
D. can easily evaluate before consumption.
The main objective of advertising for a monopolistically competitive firm is to A. earn long-run profits. B. eliminate competitors. C. reduce costs. D. differentiate its product from those of other firms and boost demand
D. differentiate its product from those of other firms and boost demand
Why have U.S. companies opted to increase the amount of advertising in digital formats? A wide variety of industries utilize digital ads in order to A. ease the entry of new firms into their respective markets. B. persuade viewers to spend more time on Internet sites and social network pages. C. signal that it intends to stay in business for a long time. D. differentiate their products.
D. differentiate their products.
An individual firm in a monopolistically competitive industry faces a ________ demand curve and a(n) ________ marginal revenue curve. A. horizontal; vertical B. horizontal; downward-sloping C. downward-sloping; upward-sloping D. downward-sloping; downward-sloping
D. downward-sloping; downward-sloping
Two oligopolists have to decide on their pricing strategy. Each can choose either a high or a low price. If they both choose a high price, each will make $12 million, but if they both choose a low price, each will make only $8 million. If one sets a high price and the other a low one, the low-priced firm will make $16 million, but the high-priced firm will make only $4 million. In the absence of collusion, A. each will choose the high price. B. one will choose the low price and the other will choose the high price. C. only the first to choose the high price will be willing to keep the high price. D. each will choose the low price.
D. each will choose the low price
A bank in Austin, Texas, has allowed its state banking license, under which it had been regulated by the Federal Deposit Insurance Corporation, a U.S. bank regulator, to expire. It has switched to a federal banking license, under which it is now regulated by the Office of the Comptroller of the Currency, another bank regulator. Do these regulators subject the bank to social or economic regulation? These regulators subject the bank to A. economic regulation because they have the power to regulate the activities of all firms throughout the economy. B. social regulation because they regulate only the activities of banks. C. social regulation because they have the power to regulate the activities of all firms throughout the economy. D. economic regulation because they regulate only the activities of banks.
D. economic regulation because they regulate only the activities of banks.
A monopolistic competitor producing an information product will set price A. greater than average total cost. B. equal to average variable cost. C. equal to marginal revenue. D. equal to average total cost.
D. equal to average total cost.
Other things equal, an increase in the productivity of labor will lead to A. fewer workers being hired. B. no change in the number of workers being hired. C. lower wages. D. higher wages.
D. higher wages.
Is each of the following items more likely to be the subject of an informational or a persuasive advertisement? For an office copying machine a firm is more likely to use A. persuasive advertising intended to induce a consumer to try the product. B. a mix of informational and persuasive advertising. C. informational advertising intended to induce a consumer to try the product. D. informational advertising that emphasizes the features of its product. E. persuasive advertising that emphasizes the features of its product.
D. informational advertising that emphasizes the features of its product.
The market demand curve for labor A. is vertical. B. is horizontal. C. is upward sloping. D. is downward sloping.
D. is downward sloping.
If the natural monopoly shown in the accompanying graph uses marginal cost pricing, then A. it will make short-run economic losses but long-run economic profits. B. it will make zero economic profit. C. it will reap long-run positive economic profit. D. it will make an economic loss.
D. it will make an economic loss.
An unregulated natural monopolist will produce to the point where A. price equals long-run average cost. B. marginal revenue equals demand. C. price equals marginal cost. D. marginal revenue equals marginal cost.
D. marginal revenue equals marginal cost.
Advertising intended to reach as many consumers as possible, typically through television, newspaper, or magazine ads is A. interactive marketing. B. direct marketing. C. credible marketing. D. mass marketing
D. mass marketing.
The Sherman Act outlaws A. mergers. B. the existence of monopolies. C. price discrimination. D. monopolization.
D. monopolization.
Nonprice competition is a characteristic of all of the following market structures except A. oligopoly. B. pure monopoly. C. monopolistic competition. D. perfect competition.
D. perfect competition.
For a deodorant a firm is more likely to use A. informational advertising that emphasizes the features of its product. B. a mix of informational and persuasive advertising. C. informational advertising intended to induce a consumer to try the product. D. persuasive advertising intended to induce a consumer to try the product. E. persuasive advertising that emphasizes the features of its product.
D. persuasive advertising intended to induce a consumer to try the product.
For a soft drink a firm is more likely to use A. a mix of informational and persuasive advertising. B. persuasive advertising that emphasizes the features of its product. C. informational advertising intended to induce a consumer to try the product. D. persuasive advertising intended to induce a consumer to try the product. E. informational advertising that emphasizes the features of its product.
D. persuasive advertising intended to induce a consumer to try the product.
Evidence shows that many young men substitute time that otherwise could be spent on wage-earning work with leisure time devoted to playing video games. Use the accompanying figure to determine the new equilibrium that will occur if more young men continue playing video games instead of supplying labor. The new equilibrium will occur at A. point A B. point B C. point C D. point D
D. point D
For the purely competitive firm, the marginal revenue product is A. the same thing as marginal factor cost. B. the same thing as marginal product. C. the marginal product times the wage rate. D. the marginal product times the product price.
D. the marginal product times the product price.
Suppose technological change occurs so that a regulated firm could produce the product at substantially lower costs. Further, the regulatory agency requires the firm to lower prices to consumers, but the reduction in price is less than the reduction in costs so that profits for the firm increase too. This would be evidence in support of A. the capture theory of regulation. B. no current theory of regulation. C. a public interest theory of regulation that says regulators always act in the best interests of consumers. D. the share-the-gains, share-the-pains theory of regulation.
D. the share-the-gains, share-the-pains theory of regulation
Using the United States as a whole would be inappropriate as the relevant geographic market when an antitrust case involved A. two auto producers. B. two oil producers. C. CNN and FOX. D. two homebuilders.
D. two homebuilders
Which of the following are products or services of oligopolists that you regularly purchase or own? A. ovens, refrigerators, and hair salon services B. refrigerators, bakery goods, and courier services C. automobiles, office supplies, and personal computers D. automobiles, personal computers, and gasoline
D. automobiles, personal computers, and gasoline
A heavy-duty filing cabinet represents A. a credence good, since it possess qualities that are relatively easy for consumers to assess in advance of their purchase. B. an experience good, since people must actually consume before they can determine their qualities. C. an experience good, since it possess qualities that are relatively easy for consumers to assess in advance of their purchase. D. a credence good, since people must actually consume before they can determine their qualities. E. a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. F. a search good, since people must actually consume before they can determine their qualities.
E. a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase.
For an automobile loan a firm is more likely to use A. a mix of informational and persuasive advertising. B. informational advertising intended to induce a consumer to try the product. C. persuasive advertising intended to induce a consumer to try the product. D. persuasive advertising that emphasizes the features of its product. E. informational advertising that emphasizes the features of its product.
E. informational advertising that emphasizes the features of its product.
_____ regulation applies to specific industries, whereas ____ regulation applies to businesses throughout the economy. Governments commonly regulate the prices and quality of services provided by electric, gas, and other utilities, which traditionally have been considered ______ monopolies. Governments also single out various nonmonopolistic industries, such as the financial and transportation industries, for special forms of ______ regulation. Among the common forms of _______ regulation covering all industries are the occupational, health, and safety rules that federal and state governments impose on producers.
Economic social natural economic social
Maximum wage payed
Equal to marginal revenue product
Explain how the following events would affect the demand for labor. a. A new education program administered by the company increases labor's marginal product. The demand for labor would ________. b. The firm completes a new plant with a larger workspace and new machinery that workers can utilize and that does not substitute for the functions provided by workers' labor. The demand for labor would _______.
Increase Increase
Classify each of the following as an example of direct (D), interactive (I), and/or mass marketing (MM). A cosmetics firm pays for full-page display ads in a number of top women's magazines. _____ A magazine distributor mails a fold-out flyer advertising its products to the addresses of all individuals it has identified as possibly interested in magazine subscriptions. _____ An online gambling operation arranges for pop-up ads to appear on the computer screen every time a person uses a media player to listen to digital music or play video files, and clicking on the ads directs an individual to its web gambling site. _____ A car dealership places advertisements in newspapers throughout the region where potential customers reside. _____
MM D I MM
Marginal Revenue Product
Marginal physical product x price
______ effects exist when a consumer's demand for an item depends in part on how many other consumers also use the product. _____ market feedback arises if consumption of a product by a sufficient number of individuals induces others to purchase it. _____ market feedback can take place if a falloff in usage of a product by some consumers causes others to stop purchasing the item. In an industry with differentiated products subject to network effects, an oligopoly may arise if a few firms can reap most of the sales _____ resulting from _____ market feedback. In two-sided markets, an intermediary firm called a _____ provides services that link other groups of producers and consumers that are known as _____
Network Positive Negative gains positive platform end users
The first national antitrust law was the ______ Antitrust Act of 1890, which made illegal every contract and combination in restraint of trade. It remains the single most important antitrust law in the United States. The ______ Act of 1914 made illegal various specific business practices, such as price discrimination. The ______ of 1914 and its 1938 amendment established the Federal Trade Commission and prohibited "unfair or deceptive acts or practices in commerce." The ______ of 1936 aimed to prevent large producers from driving out small competitors by means of selective discriminatory price cuts. As part of the enforcement of antitrust laws, officials at the U.S. Department of Justice and the Federal Trade Commission typically define a ______ market and compute the change in and new level of the ______ to assess whether to legally challenge a proposed merger. Antitrust enforcers must decide whether producers seek to monopolize the relevant market, which involves determining both the relevant ______ market and the relevant ______ market. Antitrust authorities generally have not considered product ______, or offering different versions of essentially the same product for sale at different prices, to be illegal price discrimination. U.S. authorities have, however, raised antitrust concerns about product ______, which they view as a method of engaging in tie-in sales that require consumers to purchase one product in order to obtain another.
Sherman Clayton Federal Trade Commission Robinson-Patman relevant Herfindahl-Hirschman Index product geographic versioning bundling (practice says versioning but that is incorrect)
______ such as words, symbols, and logos distinguish firms' products from those of other firms. Firms seek to differentiate their brands through advertising, via ______ marketing, ______ marketing, or ______ marketing. A firm is more likely to use ______ advertising that emphasizes the features of its product if the item is a search good with features that consumers can assess in advance. A firm is more likely to use ______ advertising to affect consumers' tastes and preferences if it sells an experience good. This is an item that people must actually consume before they can determine its qualities. A firm that sells ______ good, which is an item possessing qualities that consumers lack the expertise to fully assess, typically uses a combination of informational and persuasive advertising.
Trademarks direct mass interactive information persuasive a credence
Consider the accompanying table's fictitious sales data (in thousands of dollars) for books sold both over the Internet and in physical retail establishments. Firms have numbers instead of names, and Firm 1 generates book sales only over the Internet. Antitrust authorities judge that a single firm possesses "monopoly power" if its share of sales in the relevant market exceeds 70 percent. Suppose that the antitrust authorities determine that bookselling in physical retail stores and Internet bookselling are individually separate relevant markets. Does any single firm have monopoly power, as defined by the antitrust authorities? _____ Firm _____ has monopoly power in the ______ market. Suppose that in fact there is really only a single book industry, in which firms compete both in physical retail stores and via the Internet. According to the antitrust authorities' measure of monopoly power, is there actually cause for concern? _____
Yes 1 Internet No
Characterize each of the following as a positive-sum game (P), a zero-sum game (Z), or a negative-sum game (N). Office workers contribute $10 each to a pool of funds, and whoever best predicts the winners in a professional sports playoff wins the entire sum. _____ After three years of fighting with large losses of human lives and material, neither nation involved in a war is any closer to its objective than it was before the war began. ______ Two collectors who previously owned incomplete and nearly worthless sets of trading cards exchange several cards, and as a result both end up with completed sets with significant market value. ______
Z N P
You play a card game in your dorm room with three other students. Each player brings $5 to the game to bet on the outcome, winner take all. ___ A thousand people buy $1 lottery tickets with a single payoff of $800. ____ Two nations exchange goods in a mutually beneficial transaction. ____
Z N P
When unions set wage rates ______ market clearing prices, they face the problem of ______ a restricted number of jobs to workers who desire to earn the higher wages. Unions may pursue any one of three goals: (1) to employ ______ union members, (2) to maximize total ______ of the union's members, or (3) to ______ wages for certain, usually high-seniority, workers. Unions can increase the wage rate of members by engaging in practices that shift the union labor supply curve ______ or shift the demand curve for union labor ______ (or both).
above rationing all income maximize inward outward
For each product listed below, indicate whether you think all or just a few firms within the industry that produces each product experience market feedback effects. In addition, indicate whether the feedback effects are positive or negative. Product: Cell phone capable of text messaging Number of firms that experience market feedback effects: _____. The market feedback effects are _____. Product: Traditional wire long-distance service Number of firms that experience market feedback effects: _____. The market feedback effects are _____. Product: Internet service Number of firms that experience market feedback effects: _____. The market feedback effects are _____.
all positive most negative most positive
A _____ is a group of firms in an industry that agree to set common prices and output quotas to restrict competition. Characteristics of an industry that make it more likely that firms can coordinate efforts to restrain output and earn economic profits are a _____ number of firms, relatively _____ products, easily _____ prices, and little _____ in prices. Factors that contribute to the breakdown of a cartel are the _____ of firms seeking the economic profits earned by the cartel members and _____ in economic activity.
cartel small undifferentiated observable variation entry variations
Product compatibility is the capability of an item sold by one firm to function with another firm's _____ product. Product compatibility is an industry-wide issue for _____ firms selling two or more complementary products subject to _____ effects.
complementary multiproduct network
An industry battle between incompatible product formats can occur if competing firms selling sets of ____ products fail to take into account _____ effects.
complementary network
At every point along the AFC curve in the figure to the right, what is true of the dollar amount of this firm's total fixed costs at any given point that one might select? Total fixed cost is _____ by definition. If the output rate is 50 units in the figure, then AFC equals $_____ per unit so that TFC equals $_____. It follows then that, if 324 units are produced per time period, AFC must equal $______ per unit
constant $50 $2500 $7.72
Since marginal revenue product is _______ along the MRP1 curve and equals the marginal product times the _______, a rise in the product price to $7 per unit causes the MRP curve to shift _______ to MRP2
constant product price up (or right)
The capture hypothesis holds that regulatory agencies will eventually be captured by industry special interests because ______ individually are not greatly influenced by regulation, whereas regulated ______ are directly affected. According to the share-the-gains, share-the-pains theory of regulation, regulators must take into account the interests of three groups: the __________, __________, and __________. A. government; legislators; consumers B. industry; legislators; consumers C. firms; government; consumers D. industry; legislators; government Regulation has benefits that are difficult to quantify in dollars. The costs of regulation include direct ______ expenditures on regulatory agencies and ______ explicit and implicit opportunity costs of complying.
consumers firms B. industry; legislators; consumers government firms'
In the figure to the right, suppose that We is a wage rate of $28 per hour and Wu is a wage rate of $41 per hour. In addition, Qd is 12,000 workers per hour, Qe is 15,000 workers per hour, and Qs is 18,000 workers per hour. If each worker hired corresponds to a job available within the unionized industry, how many jobs must the union ration at the wage rate Wu? What is the shortage of jobs? The quantity of jobs that the union must ration across its membership at the wage rate Wu = $41 per hour equals the quantity of labor ______, which is ______ workers per hour. The shortage of jobs at this wage rate is ______ jobs per hour
demanded by firms 12,000 6,000
The individual perfectly competitive firm faces a perfectly ______ labor supply curve—it can hire all the labor it wants at the going market wage rate. The industry supply curve of labor slopes _______. By plotting an industrywide supply curve for labor and an industrywide demand curve for labor on the same graph, we obtain the _______ wage rate in the industry. The labor demand curve can shift because the __________ the final product shifts, labor __________ changes, or the price of a related (__________ or __________) factor of production changes. A. supply of; productivity; substitute; complementary. B. demand for; productivity; substitute; complementary. C. supply of; supply; substitute; complementary. D. demand for; supply; substitute; complementary.
elastic upward equilibrium B. demand for; productivity; substitute; complementary.
Governments tend to regulate industries in which they think market _____ and _____ information problems are most severe. A common justification for government regulation is to protect consumers from adverse effects of _____ information. To address the _____ problem, or the potential for _____-quality products to predominate when asymmetric information is widespread, governments often supplement private firms' guarantees, warranties, and certification standards with liability laws and licensing requirements.
failures asymmetric asymmetric lemons low
The effect of the supply shift is that the market wage rate ______ and equilibrium employment _______
falls rises
When a firm produces an information product, the initial or fixed costs are _____. Consequently the average fixed cost and average total cost _____ as the volume of output increases. Since most of the costs are the initial fixed costs of development, once the product is developed, the _____ cost of producing more units of the product are typically low and _____. In this case, then, the low and constant marginal cost is _____ the average cost.
high decrease marginal constant below
Firms that sell information products experience relatively _____ fixed costs, but once they have produced the first unit, they can sell additional units at a relatively _____ per-unit cost. Consequently, the manufacturer of an information product experiences short-run ______. If a firm sets the price of an information product equal to marginal cost, it earns only sufficient revenues to cover its ______ costs. In a long-run equilibrium outcome under monopolistic competition, the price of an information product equals ______ cost. The seller's total revenues exactly cover _____ costs, including the opportunity cost of capital.
high low economies of operation variable average total total
In a monopolistically competitive industry, a relatively ______ number of firms interact in a _______ competitive market. Because monopolistically competitive firms sell ______ products, sales promotion and advertising are common features of a monopolistically competitive industry. There is ______ entry (or exit) of new firms in a monopolistically competitive industry.
large highly differentiated easy
When a firm sells its output in a monopoly market, marginal revenue is _______ than price. Just as the MRP is the perfectly competitive firm's input demand curve, the MRP is also the _______ input demand curve. The profit-maximizing combination of factors will occur when each factor is used up to the point at which its MRP is equal to its unit _______. To minimize total costs for a given output, the profit-maximizing firm will hire each factor of production up to the point at which the ______ product per last dollar spent on each factor is equal to the _______ product per last dollar spent on each of the other factors of production. To maximize profits, the _______ product of each resource must equal the resource's _______
less monopolist's price marginal marginal marginal revenue price
Under the Capper-Volstead Act of 1922, U.S. farmers are permitted to form cooperative organizations aimed at influencing aggregate production and market prices of their crops. Today, many of the nation's 10,000 potato farmers are aiming to expand the United Potato Growers of America (UPGA), an organization dedicated to restricting potato production, pushing up potato prices, and boosting profits. The UPGA includes farmers from California, Colorado, Idaho, Oregon, Texas, Washington, and Wisconsin. Members sign an agreement to restrict their production of potatoes. The UPGA uses satellite photography and global-positioning-system technology to enforce the agreement and fines members who are caught cheating. Based on the discussion of the factors favoring the organization and enforcement of a cartel, what aspects of U.S. potato farming make the ultimate success of the UPGA's potato cartel more or less likely? The number of firms makes it _____ likely the UPGA's cartel will be successful. Being that the product is potatoes makes it _____ likely the UPGA's cartel will be successful. The fact that potatoes are publically traded in large highly organized markets makes it _____ likely the UPGA's cartel will be successful. If the demand for potatoes suddenly became more volatile, that would make it _____ likely the UPGA's cartel will be successful.
less more more less
A natural monopoly arises when one firm can produce all of an industry's output at a _____ per-unit cost than other firms. A profit-maximizing natural monopolist produces to the point at which marginal _____ equals long-run marginal _____ and charges the price that people are willing to pay for the quantity produced. Because a natural monopolist that is required to set price equal to long-run marginal cost will sustain long-run losses and shut down, regulators typically allow natural monopolists to charge prices that just cover _____ costs. Normally, regulators have done this through cost-of-service regulation, in which prices are based on actual production costs, or rate-of-return regulation, in which prices are set to yield a rate of return consistent with _____ economic profits. Technological and regulatory innovations have made the concept of natural monopoly less relevant. In the electricity, natural gas, and telecommunications industries, production increasingly is accomplished by numerous competing firms that _____ their products through regulated _____
lower revenue cost average zero deliver networks
The figure to the right depicts both monopolistically competitive and perfectly competitive firms. In what fundamental ways do these two types of firms behave similarly in a long-run equilibrium? In what fundamental ways does the monopolistically competitive firm behave differently? Key similarities are that both the monopolistically competitive firm and the perfectly competitive firm face competition from ______ other firms, produce at the point where ______, and have a price ______ average total cost and hence earn ______ economic profits in a long-run equilibrium. The key differences are that the demand curve for the monopolistically competitive firm slopes downward because of product ______, and that its price _______ MR ______ the minimum feasible ATC.
many MR=MC equal to zero differentiation exceeds and exceeds
The ______ economic profits would cause existing firms to ______ the market and could cause the demand curves (and marginal revenue curves) for exisitng firms to shift ______ substantially. Thus, in the long run, the typical monopolistically competitive firm would earn ______ economic profits because the firm's demand curve would be ______ the ATC curve at the profit-maximizing level of output.
negative exit outward
A monopsonist is the only _____ in a market. The monopsonist faces ______-sloping supply curve of labor. Because the monopsonist faces ______-sloping supply curve of labor, the marginal factor cost of increasing the labor input by one unit is ______ than the wage rate. Thus, the marginal factor cost curve always lies ______ the supply curve. A monopsonist will hire workers up to the point at which marginal ______ cost equals marginal _______ product. Then the monopsonist will find the lowest necessary wage to attract that number of workers, as indicated by the supply curve.
only buyer an upward an upward greater above factor revenue
The change in total _____ due to a one-unit change in one variable _____, holding all other ______ constant, is called the marginal product (MP). When we multiply marginal product times _______, we obtain the marginal revenue product (MRP). A firm will hire workers up to the point at which the additional cost of hiring one more worker is equal to the additional revenue generated. For the individual firm, therefore, its MRP of labor curve is also its ______ labor curve. The demand for labor is ______ demand, _______ from the demand for final output. Therefore, a change in the price of the final output will cause ______ the MRP curve (which is also the firm's demand for labor curve).
output input inputs marginal revenue demand for a derived derived a shift in
Industry concentration can be measured by the combined ______ of total _____ accounted for by the top four firms in the industry.
percentage sales
The ______ economic profits would cause new firms to ______the market and could cause the demand curves (and marginal revenue curves) for exisitng firms to shift ______ substantially. Thus, in the long run, the typical monopolistically competitive firm would earn ______ economic profits because the firm's demand curve would be ______ the ATC curve at the profit-maximizing level of output.
positive enter inward zero tangent to
Each oligopolist has a _____ function because oligopolistic competitors are interdependent. They must therefore engage in ______ behavior. One way to model this behavior is to use game theory. Games can be either cooperative or noncooperative. In a ______-sum game, one player's losses are exactly offset by another player's gains. In a ______-sum game, all players collectively lose, perhaps one player more than the others. In a ______-sum game, the players as a group end up better off. Decision makers in oligopolistic firms must devise a strategy. A ______ strategy is one that is generally successful no matter what actions competitors take.
reaction strategic zero negative positive dominant
Evidence shows that many young men substitute time that otherwise could be spent on wage-earning work with leisure time devoted to playing video games. What effect will this trend have on the equilibrium labor market? If more young men choose to play video games instead of supplying labor, the labor supply curve will ______. This will cause the market clearing wage rate to ______ and the equilibrium quantity of labor to ______.
shift to the left rise fall
In the _____ run, it is possible for monopolistically competitive firms to make economic profits or economic losses. In the _____ run, monopolistically competitive firms will make _____ economic profits—that is, they will make a _____ rate of return. Because the monopolistic competitor faces a downward-sloping demand curve, it does not produce at the minimum point on its average ______ cost curve. Hence, we say that a monopolistic competitor has higher average _____ costs per unit than a perfect competitor would have. Chamberlin argued that the difference between the _____ cost of production for a monopolistically competitive firm and the _____ average total cost at which a perfectly competitive firm would produce is the cost of producing "differentness."
short long zero normal total total average total minimum
An oligopoly is a market situation with a _____ number of _____ sellers. Oligopoly may result from _____ of scale, barriers to entry, and _____. _____ mergers involve the merging of one firm with either the supplier of an input or the purchaser of its output. _____ mergers involve the joining of firms selling a similar product.
small interdependent economies mergers Vertical Horizontal
Suppose that all firms in an industry collude to reduce output, which raises the product price to $6.94 and requires the perfectly competitive firm in the figure to the right to reduce its output from 500 units to 300 units. What is the total dollar amount of this typical perfectly competitive firm's economic incentive to join the proposed cartel, assuming that, after the fact, no firms cheat on the specified cartel agreement? Explain your reasoning. In the absense of collusion among the firms, the typical perfectly competitive firm's economic profits are _____ because price _____ average total cost. If ATC = $5.58 at the reduced output of 300 units, then the typical firm's economic incentive to participate in the cartel is $_____
zero equals $408
Differences in network effects across different groups of end users can induce platforms to establish positive prices to one group but to establish ______ prices or even ______ prices, or subsidies, for another group.
zero negative
The key characteristics of a monopolistically competitive industry are: [A] A large number of firms that sell differentiated products that are close substitutes. [B] Firms can easily enter or exit a monopolistically competitive industry. [C] Because monopolistically competitive firms can increase their profits if they can successfully distinguish their products from those of their rivals, they have an incentive to engage in sales promotions and advertising. There are a number of fast-food restaurants in town, and they compete fiercely. Some restaurants cook their hamburgers over open flames. Others fry their hamburgers. In addition, some serve broiled fish sandwiches, while others serve fried fish sandwiches. A few serve ice cream cones for dessert, while others offer frozen ice cream pies. ______ There is a vast number of colleges and universities across the country. Each competes for top students. All offer similar courses and programs, but some have better programs in business, while others have stronger programs in the arts and humanities. Still others are academically stronger in the sciences. ______
[A] A large number of firms that sell differentiated products that are close substitutes. [A] A large number of firms that sell differentiated products that are close substitutes.