DC Microeconomics Unit 4 Review Part 2
Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 27%, 26%, 22%, 12%, 7%, 4%, and 2%. What is the Herfindahl Index for the hamburger industry in this town?
2,102
Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 27%, 26%, 22%, 12%, 7%, 4%, and 2%. What is the four-firm concentration ratio of the hamburger industry in this town?
87%
Which of the following is an example of creative destruction?
Automobile production causes the wagon industry to shut down.
Which of the following is not a major barrier to entry into an industry?
Diminishing Marginal Returns
Suppose that the paper clip industry is perfectly competitive. Also assume that the market price for paper clips is 2 cents per paper clip. The demand curve faced by each firm in the industry is:
Horizontal
What do economies of scale, the ownership of essential raw materials, and patents have in common?
They are all barriers to entry.
Which of the following is a true statement?
Unfair competition is a barrier with no social justification.
a. Identify the basic characteristics of Pure Competition:
Very large number of firms No Control Over Price Standardized Product
Which constitutes an obstacle to collusion among oligopolists?
a large number of firms.
Barriers to entering an industry
are the basis for monopoly.
When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of
collusion.
In the long run in a purely competitive industry,
entry and exit of firms can occur.
A monopolistically competitive firm has a
highly elastic demand curve.
As a general rule, oligopoly exists when the four-firm concentration ratio
is > 40%.
An industry having a four-firm concentration ratio of 85%
is an oligopoly.
The firm should produce in the short run as long as marginal revenue
is greater than or equal to marginal cost
Game theory
is the analysis of how people (or firms) behave in strategic situations.
A perfectly competitive firm that makes car batteries has a fixed cost of $10,000 per month. The market price at which it can sell its output is $100 per battery. The firm's marginal is $105 per battery. The firm is currently producing 500 batteries a month (the output level at which MR < MC). This firm is making a _____________ and should _______________ production.
loss; shut down
Monopolistic competition means
many firms producing differentiated products.
If you want to go to a National Football League game at Soldier Field in Chicago, you must patronize the Bears. This makes the Bears organization a
monopoly firm in Chicago.
Mutual interdependence means that each oligopolistic firm
must consider the reactions of its rivals when it determines its price policy.
Which of the following is a unique feature of oligopoly?
mutual interdependence & game theory
A market where there are many firms, but one firm dominates and has the bulk (85 percent) of sales in the market, is called a
near-monopoly.
A monopolistically competitive industry is like a purely competitive industry in that
neither industry has significant barriers to entry.
Game theory is an exclusive feature of a(n)
oligopoly
Pure monopolists
operate where P > MC.
Which of the following is a government-aided barrier to entry?
patents and licenses
Mr. Arcella produces and sells avocados in a purely competitive market. This implies that Mr. Arcella's marginal revenue from an extra unit of avacados is always equal to the
price
Which of the following characteristics provide a monopolistically competitive firm some monopoly power?
product differentiation
In which of these lists in order of competition (highest to lowest) is monopolistic competition properly placed?
pure competition, monopolistic competition, oligopoly, pure monopoly
In which of these lists by competition (lowest to highest) is oligopoly properly placed?
pure monopoly, oligopoly, monopolistic competition, pure competition
Mr. Arcella's farm sells corn in a perfectly competitive market. The farm is currently realizing economic profits of $25,000 in the short run. In the long run we would expect Mr. Arcella's farm to
realize economic profits of $0.
Which of the following is a characteristic of monopolistic competition?
relatively easy entry
In which industry is monopolistic competition most likely to be found?
retail trade
Which of the following is an illustration of oligopoly?
soft drink industry
Which phrase would be most characteristic of pure monopoly?
sole seller
When an industry is purely competitive, price can be substituted for marginal revenue in the MR = MC rule because
the demand curve is perfectly elastic and the price is constant regardless of the quantity demanded, so MR is constant and equal to the price.
One defining characteristic of pure monopoly is that
the monopolist produces a product with no close substitutes.
One difference between monopolistic competition and pure competition is that
there is some control over price in monopolistic competition.
The MR = MC rule applies
to firms in all types of industries (except monopolies).
