chapter 9

A public franchise is a right granted

to a firm by government that prevents other firms from producing the same product or service.

The ________________________ Acts, passed by the British Parliament in the 1760s, imposed taxes on a variety of products imported into the American colonies.

townsend

The merger of a brewery with an aluminum can producer is an example of a __________ merger.

vertical

In long-run equilibrium, the perfectly competitive firm earns __________ economic profits.

zero

Refer to Exhibit 24-3. For this profit maximizing monopolistic competitor profit is represented by the area

P3P1AC

Which of the following is inconsistent with long-run industry equilibrium?

SRATC > LRATC

Which of the following is not an assumption of oligopoly?

There are few buyers.

Price discrimination was deemed illegal by the

clayton act

When a perfectly competitive firm incurs losses, it follows that price

must be below average total cost.

A monopolist can sell 10,000 units at a price of $17. Lowering price by $2 raises the quantity demanded by 2,000 units. What is the change in total revenue that results from this price change?

$10,000

Which of the following industries is the best real-world example of monopolistic competition?

computer software

There are ten firms in an industry. Five of the firms each have a market share of 13 percent and five of the firms each have a market share of 7 percent. The Herfindahl index is

1,090.

In the United States, patents are granted to inventors of a product or process for a period of

20 years

Refer to Exhibit 23-4. The profit-maximizing single-price monopolist's maximum profit is

42

Refer to Exhibit 22-3. What quantity of output should the profit-maximizing firm produce?

44 units

Refer to Exhibit 23-6. The price and quantity of a single-price monopolist producing good X are P0 and qB, respectively. The marginal revenue curve is represented by

A

Which of the following is not an assumption of the theory of monopolistic competition?

All firms face the same cost conditions

The type of merger most likely to reduce competition in an industry is a(n) __________ merger.

horizontal

Which of the following is an assumption of the theory of oligopoly?

Firms produce and sell either homogeneous or differentiated products.

Why must profits be zero in long-run competitive equilibrium?

If profits are not zero, firms will enter or exit the industry.

Which of the following statements is false?

NOT The monopolistic competitor produces an output at which price is greater than marginal cost.

Refer to Exhibit 22-2. What quantity of output does the profit-maximizing (or loss-minimizing) firm produce?

Q2, where marginal cost is equal to marginal revenue.

The antitrust act that says, "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal" is the

Sherman Act.

Suppose one firm in a perfectly competitive industry experiences an increase in its costs of production. Which of the following best describes the most likely long run adjustment to this situation?

The firm in question may suffer losses and exit the industry.

Which of the following is not an assumption of the theory of monopoly?

The single seller sells a product for which there are many close substitutes.

Which of the following statements about a perfectly competitive firm is necessarily false?

There are few substitutes for the firm's product.

In the short-run, if P < ATC, a perfectly competitive firm should

There is not enough information to answer the question.

To engage in price discrimination, it is necessary that

a seller be a price searcher.

A price searcher is

a seller that can sell some of its output at various prices

In maximizing profits, a single-price monopolist will charge a price that is

greater than marginal cost.

The Herfindahl index is obtained by

adding the squares of the market shares of each firm in the industry.

Which of the following is an example of an oligopoly market in which the firms produce a homogeneous product?

aluminum

If a price-discriminating monopoly charges a lower price to individuals in city X, it is likely that the firm

believes that the demand of individuals in city X is relatively elastic.

A firm defending itself in an antitrust suit would prefer the market it operates in to be defined _____________, which ______________ the firm's market share compared to what it might be judged otherwise.

broadly; lowers

The theory of perfect competition generally assumes that

buyers and sellers act independently of other buyers and sellers.

Which of the following is a characteristic of perfect competition?

buyers and sellers having all relevant information

In the real-world, which of these industries is most clearly an oligopoly?

cereal breakfast foods

The Robinson-Patman Act of 1936 was passed in an attempt to

decrease the failure rate of small businesses.

The Herfindahl index measures the

degree of concentration in an industry.

The monopolist's marginal revenue curve is

downward sloping and lies below the firm's demand curve.

The market demand curve in a perfectly competitive market is

downward sloping.

In the long run, new firms will enter a monopolistic competitive industry until

economic profits in the industry are zero.

A natural monopoly exists when

economies of scale are so large that only one firm can survive and achieve low unit costs.

The theory of contestable markets concludes that

even if the number of sellers in an industry is small, profits can be zero in the industry.

Compared to a monopolistic competitor, a monopolist produces a good with __________ substitutes and so has a __________ elastic demand curve.

fewer; less

The Justice Department considers a Herfindahl index ____________________________ to be representative of a concentrated industry.

greater than 1,800

A network good is one whose value

increases as the expected number of units sold increases.

The "prisoner's dilemma" game illustrates a case in which

individually rational behavior leads to a collectively inefficient outcome.

The demand curve facing a perfectly competitive firm

is perfectly horizontal.

A firm that is a price taker will not sell any of its product for less than the equilibrium price because

it can sell all it can produce at the equilibrium price.

Refer to Exhibit 22-10. What quantity of output should the profit-maximizing firm produce?

its not 8

Refer to Exhibit 22-1. The dollar amounts that go in blanks (A) and (B) are, respectively,

its not.. $4.80 and $4.86.

For a single-price monopoly, marginal revenue is

less than price for all units of output after the first unit.

The existence of switching costs in the use of computer software means that buyers of computer software are __________ likely to change software programs than would be the case in the absence of switching costs, and therefore, the maker of the software program may have __________ reason to innovate.

less; less

The profit-maximizing perfectly competitive firm charges a price equal to __________ while the profit-maximizing monopolistic competitive firm charges a price __________.

marginal cost; greater than marginal cost

A monopolistic competitive firm maximizes profits by producing at the point where

marginal revenue equals marginal cost.

The profit-maximizing monopolistic competitive firm produces the level of output at which

marginal revenue equals marginal cost.

The profit-maximizing oligopolist produces at the level of output where

marginal revenue equals marginal cost.

A single-price monopolist

must lower price..

Refer to Exhibit 25-3. The Herfindahl Index for this industry is currently

not 1980

Refer to Exhibit 24-7. A monopolistic competitive firm earns a total profit of __________ when it produces and sells 20 units of its good.

not 200

Refer to Exhibit 23-7. The total revenue collected by a profit-maximizing single-price monopolist is

not 9000

Refer to Exhibit 24-3. Which of the following points represents the profit-maximizing quantity and price of a monopolistic competitor?

not D

A local government prevents any firm from competing with a natural monopoly firm. Those people who believe this is a wise policy action would likely say

this is a desirable state of affairs since if competition is allowed, the natural monopoly firm will out compete all newcomers and in the end the newcomers will go out of business.

Economic rent is a payment in excess of

opportunity cost.

Which of the following assumptions applies to both perfect competition and monopolistic competition?

profit is maximized at the level of output for which MR = MC

Refer to Exhibit 23-5. What area represents the revenue gained when price goes from P2 to P1?

q2CAq1

The capture theory of regulation holds that

regardless of the motive for the initial regulation and the establishment of the regulatory agency, eventually the regulatory agency will be "captured" (controlled) by the special interests of the industry that is being regulated.

The public interest theory of regulation holds that

regulators are seeking to do and will do through regulation what is in the best interest of the public.

A firm produces the quantity of output at which P = MC and P = ATC. It follows that the firm is

resource allocative efficient, but not necessarily productive efficient.

"Rent seeking" is socially wasteful because

resources devoted to transferring rents are not used to produce goods.

In the past, it was theorized that __________ firms were the most likely to innovate. In recent years, new information has suggested that __________ firms are greater innovators. If true, this makes antitrust intervention in the case of mergers __________ important.

small; large; less

Real-world markets that approximate the four assumptions of the theory of perfect competition include the

stock market.

Which antitrust legislation made price discrimination illegal?

the Clayton Act

The antitrust legislation that declares illegal "unfair methods of competition in commerce" is

the Federal Trade Commission Act.

Marginal revenue is

the change in total revenue brought about by selling an additional unit of the good.

Large firms may be more likely to innovate because

the risks of failure are less to them than to small firms

The demand curve facing a monopolist is always

the same as the industry demand curve.

If a market comes close to meeting (but does not perfectly meet) all the assumptions of the theory of perfect competition, it follows that

the theory of perfect competition still may be able to predict behavior in the market.

According to the textbook, in recent years which of the following industries has had high four- and eight-firm concentration ratios?

tires