ECON 130 CH 25, 26, & 30

Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are​ (as percentages of all hamburgers​ sold): 15 ​percent, 22 ​percent, 20 ​percent, 13 ​percent, 12 ​percent, 10 ​percent, and 8 percent. The​ four-firm concentration ratio for the hamburger industry in this town is 70 percent. ​(Enter your response as a whole​ number.) The Herfindahl index for the hamburger industry in this town is 1586. ​(Enter your response as a whole​ number.) Suppose the top three sellers combined to form a single firm. The​ four-firm concentration ratio would be 92 percent. ​(Enter your response as a whole​ number.) Suppose the top three sellers combined to form a single firm. The Herfindahl index would be 3726. ​(Enter your response as a whole​ number.)

70; 1586; 92; 3726

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

Once a cartel agreement has been​ made, it is rare for the agreement to break down. A. False B. True

A. False

Which of the following products is subject to network​ effects? A. Instant messaging services. B. Online bill payment services. C. Broadcast T.V. services. D. Personal computers.

A. Instant messaging services.

Which of the following is a characteristic of an​ oligopoly? A. Strategic interdependence. B. A single seller. C. No barriers to entry. D. No market power.

A. Strategic interdependence.

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. 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

Creating the first copy of an information product often entails incurring a relatively sizable​ up-front cost. A. True B. False For the producer of an information​ product, marginal cost is A. less than average total cost. B. equal to average variable cost. C. constant. D. All of the above.

A. True; D. All of the above.

A wool overcoat represents A. a search​ good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. B. an experience​ good, since it possess qualities that are relatively easy for consumers to assess in advance of their purchase. C. an experience​ good, since people must actually consume before they can determine their qualities. D. a search​ good, since people must actually consume before they can determine their qualities. E. a credence​ good, since it possess 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.

A. a search​ good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase.

A​ heavy-duty filing cabinet represents A. a search​ good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. B. a credence​ good, since people must actually consume before they can determine their qualities. C. a credence​ good, since it possess qualities that are relatively easy for consumers to assess in advance of their purchase. D. an experience​ good, since people must actually consume before they can determine their qualities. E. a search​ good, since people must actually consume before they can determine their qualities. F. an experience​ good, since it possess qualities that are relatively easy for consumers to assess in advance of their purchase.

A. a search​ good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase.

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. an experience​ good, possessing qualities that are relatively easy for consumers to assess in advance of their purchase. C. a credence​ good, possessing qualities that are relatively easy for consumers to assess in advance of their purchase. D. 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. F. a credence​ 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.

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​ non-cooperative game of​ strategy, where participants independently choose their strategy to maximize their payoffs. B. a dynamic game of​ strategy, which is played over time. C. an NCAA football game. D. a cooperative game of​ strategy, where participants collectively choose their strategy to maximize their joint payoffs.

A. a​ non-cooperative game of​ strategy, where participants independently choose their strategy to maximize their payoffs.

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 increases from​ $2 million to ​$3 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 increases from​ $2 million to ​$3 ​million, then A. both firms will maintain their decisions to charge low prices because each can make more by doing so. B. Firm 1 will continue to charge a low price to make​ more, while Firm 2 will make more if it charges a higher price. C. both firms will maintain their decisions to charge high prices because each can make more by doing so. D. Firm 2 will continue to charge a low price to make​ more, while Firm 1 will make more if it charges a higher price.

A. both firms will maintain their decisions to charge low prices because each can make more by doing so.

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. only persuasive​ advertising, so as to induce the consumer to purchase this particular product. C. only informational​ advertising, so as to provide detailed information about the various features of the product. D. neither informational nor persuasive​ advertising, since the consumers are in general wary of misleading advertisement.

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.

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. differentiate their products. B. signal that it intends to stay in business for a long time. C. persuade viewers to spend more time on Internet sites and social network pages. D. ease the entry of new firms into their respective markets.

A. differentiate their products.

The number of firms in a monopolistically competitive market means that A. each firm has a relatively small share of the total market since there are many firms in the industry. B. all firms will have substantial monopoly power since there are so few firms in the industry. C. firms will be dependent on other firms to make output and price changes since there are many firms in the industry. D. firms will likely collude since there are only a few firms in the industry.

A. each firm has a relatively small share of the total market since there are many firms in the industry.

A firm that produces an information product will A. earn zero economic profits in the long run. B. earn positive or zero economic profits in the long run. C. earn negative or zero economic profits in the long run. D. earn positive economic profits in the long run.

A. earn zero economic profits in the long run.

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​ right, thus reducing each​ firm's market share and economic profits. C. normal profits. This will shift demand to the​ left, 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.

The graph to the right shows​ demand, marginal​ revenue, marginal​ cost, and average total cost curves for a monopolistically competitive firm. ​1.) Using the point drawing tool​, identify the​ profit-maximizing price and quantity for the​ firm, and label the point​ 'E'. ​2.) Using the rectangle drawing tool​, identify the​ firm's profit or​ loss, and properly label it either​ 'Profit' or​ 'Loss'. Carefully follow the instructions​ above, and only draw the required objects. If every firm in this industry is like the representative firm​ above, A. firms will exit the industry. B. the industry is in​ long-run equilibrium. C. firms will enter the industry.

A. firms will exit the industry.

Information products use​ information-intensive inputs and are characterized by A. high fixed costs but low marginal costs. B. low fixed costs and low marginal costs. C. low fixed costs but high marginal costs. D. high fixed costs and high marginal costs. E. no​ short-run fixed​ costs, and low marginal costs.

A. high fixed costs but low marginal costs.

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. informational advertising that emphasizes the features of its product. B. a mix of informational and persuasive advertising. C. persuasive advertising that emphasizes the features of its product. D. informational advertising intended to induce a consumer to try the product. E. persuasive advertising intended to induce a consumer to try the product.

A. informational advertising that emphasizes the features of its product.

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 finishes the game with a​ zero-value payoff. D. every player has a​ zero-value payoff at the beginning of the game.

A. one​ player's losses are offset by another​ player's gains.

If there is no product differentiation at​ all, then the individual firm has a demand curve that is A. perfectly elastic and identical to the firm in perfect competition. B. perfectly inelastic and identical to the firm in perfect competition. C. unit elastic and identical to the firm in perfect competition. D. slightly downward sloping and identical the firm in monopolistic competition.

A. perfectly elastic and identical to the firm in perfect competition.

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. the price leadership model does not work. D. nonprice competition is more profitable than price competition.

A. sometimes when individuals act independently in their own​ self-interest, everyone is worse off than if they had cooperated.

One difference between monopolistic competition and perfect competition is that A. there is some control over price in monopolistic competition. B. products may be homogeneous in monopolistic competition. C. monopolistic competition has significant barriers to entry. D. firms differentiate their products in perfect competition.

A. there is some control over price in monopolistic competition.

Which of the following are products or services of oligopolists that you regularly purchase or​ own? A. ​automobiles, personal​ computers, and gasoline B. automobiles, office​ supplies, and personal computers C. ovens, refrigerators, and hair salon services D. refrigerators, bakery​ goods, and courier services

A. ​automobiles, personal​ computers, and gasoline

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.

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. ​zero-sum game. B. positive-sum game. C. negative-sum game. D. reactionary game.

A. ​zero-sum game.

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. It is not possible to speculate because of the unique nature of an informational product. D. The price equals marginal cost.

B. The price equals average total cost.

A company with a registered trademark has the right to seek legal damages if someone makes unauthorized use of its brand name. A. False B. True

B. True

The percentage of sales contributed by the leading four firms in an industry is known as the​ four-firm concentration ratio. A. False B. True

B. True

All of the following are a fundamental characteristic of oligopoly except A. barriers to entry. B. a homogeneous product. C. economies of scale. D. horizontal mergers.

B. a homogeneous product.

All of the following are key characteristics of a monopolistically competitive industry except A. a large number of firms. B. a homogeneous product. C. the existence of close substitutes. D. a differentiated product.

B. a homogeneous product.

A positive 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 a good or service to come into favor with additional consumers because other consumers have chosen to buy the item. C. a tendency for the consumers to buy a larger quantity of the product when their income increases. D. 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.

A dominant strategy A. never results in the highest profits for both firms. B. always yields the unique best action for the decision maker no matter what action the other firms undertake. C. cannot be evaluated. D. always results in the highest profits for both firms.

B. always yields the unique best action for the decision maker no matter what action the other firms undertake.

The main objective of advertising for a monopolistically competitive firm is to A. eliminate competitors. B. differentiate its product from those of other firms and boost demand. C. reduce costs. D. earn​ long-run profits.

B. differentiate its product from those of other firms and boost demand.

Credence goods are goods that consumers A. buy because they are necessities. B. find difficult to assess properly. C. can easily evaluate before consumption. D. must consume in order to assess properly.

B. find difficult to assess properly.

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​ differentiated, 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 few firms and prices are observable. C. not too​ similar, 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 large number of 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. 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 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 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. D. 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.

B. 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.

One major difference between oligopoly and perfect competition is that A. oligopolistic firms act independently while competitive firms operate interdependently. B. oligopolistic firms act interdependently while competitive firms operate independently. 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.

B. oligopolistic firms act interdependently while competitive firms operate independently.

For a deodorant a firm is more likely to use A. informational advertising that emphasizes the features of its product. B. persuasive advertising intended to induce a consumer to try the product. C. persuasive advertising that emphasizes the features of its product. D. informational advertising intended to induce a consumer to try the product. E. a mix of informational and persuasive advertising.

B. persuasive advertising intended to induce a consumer to try the product.

The greater the monopolistically competitive​ firm's success at product differentiation the lower is​ (are) the​ firm's A. options for altering product price. B. price elasticity of demand. C. opportunities for collusive behavior. D. None of the above are correct.

B. price elasticity of demand.

In which industry is monopolistic competition most likely to be​ found? A. mining B. retail trade C. utilities D. agriculture

B. retail trade

The downward slope of the demand curve of a monopolistically competitive firm implies that the firm has A. increasing returns to scale. B. some monopoly power over​ price, and therefore advertising may increase profits. C. no monopoly power over​ price, and therefore advertising will not increase profits. D. constant returns to scale.

B. some monopoly power over​ price, and therefore advertising may increase profits.

If the average total costs are the same for a perfectly competitive firm and a monopolistically competitive​ firm, then we know that A. the monopolistically competitive firm will produce more units than the perfectly competitive firm. B. the monopolistically competitive firm will produce fewer units than the perfectly competitive firm. C. both will produce at the minimum points of their average total cost curves. D. Any of the above are possible.

B. the monopolistically competitive firm will produce fewer units than the perfectly competitive firm.

A​ positive-sum game occurs A. whenever any of the values in the payoff matrix are positive. B. when the sum of the two​ players' outcomes is positive. C. whenever the payoffs to the two players are equal. D. when the gains received by one player are exactly offset by the losses of the other.

B. when the sum of the two​ players' outcomes is positive.

What is the dominant strategy in this​ situation? A. Firm A offers extended warranties but Firm B does not. B. Neither firm offers extended warranties. C. Both firms offer extended warranties. D. Firm B offers extended warranties but Firm A does not.

C. Both firms offer extended warranties.

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​ $40 and firm Y will charge​ $35. C. Both firms will set the price at​ $35. D. Firm X will charge​ $35 and firm Y will charge​ $40.

C. Both firms will set the price at​ $35.

Why are brand names and advertising important features of monopolistic​ competition? A. Both of these techniques will increase the price of the product and reduce the average cost of production. B. Both of these techniques are needed to compute marginal cost. C. Both of these techniques can be used to increase the demand for the product. D. Both of these techniques can be used to increase the supply of the product.

C. 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 can earn zero economic profits in​ long-run equilibrium. C. Both types of firms produce at minimum ATC. D. Both types of firms produce where MC​ = MR.

C. Both types of firms produce at minimum ATC.

Which of the following characteristics applies to a monopolistically competitive​ industry? A. Firms face a horizontal demand curve. B. For the product being​ produced, consumers have few substitutes from which to choose. C. Products are​ similar, but not​ identical, to​ competitors' products. D. The products produced by competing firms are perfect subsitiutes for each other.

C. Products are​ similar, but not​ identical, to​ competitors' products.

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 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. D. 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.

The type of​ two-sided market in which media platforms link advertisers to potential customers is called A. a matchmaking market. B. a​ transaction-based market. C. an​ audience-seeking market. D. a​ shared-input market. Network effects are an infrequent feature of​ two-sided markets. A. True B. False Monopolistic competition is the most common industry structure in​ two-sided markets. A. True B. False

C. an​ audience-seeking market.; B. False; B. False

Enforcing a cartel agreement is A. difficult when there is only a few large firms making most of the economic profit. B. best accomplished with an implicit contract detailing​ prices, output, and the division of profits. C. difficult because firms in the cartel have an incentive to cheat on the agreement. D. best accomplished with an explicit contract detailing​ prices, output, and the division of profits.

C. difficult because firms in the cartel have an incentive to cheat on the agreement.

When Bob stood up as a response to the standing​ crowd, he was A. following a dominant strategy. B. following a dominated strategy. C. following a​ tit-for-tat strategy. D. perfecting a​ "wave."

C. following a​ tit-for-tat strategy.

For an automobile loan a firm is more likely to use A. persuasive advertising intended to induce a consumer to try the product. B. persuasive advertising that emphasizes the features of its product. C. informational advertising that emphasizes the features of its product. D. informational advertising intended to induce a consumer to try the product. E. a mix of informational and persuasive advertising.

C. informational advertising that emphasizes the features of its product.

The monopolistically competitive firm at a level of output of Q1 in the diagram is A. earning negative economic profits. B. not in​ long-run equilibrium. C. in​ long-run equilibrium. D. earning a positive economic profit.

C. in​ long-run equilibrium.

Experience goods are goods that consumers A. buy in small amounts. B. can easily evaluate before consumption. C. must consume in order to assess them properly. D. find difficult to assess properly.

C. must consume in order to assess them properly.

A game in which players as a group lose during the process of the game is called a A. noncooperative game. B. zero-sum game. C. negative-sum game. D. positive-sum game.

C. negative-sum game.

Critics argue that monopolistically competitive markets are wasteful because A. there are too few firms in the industry. B. due to large economies of​ scale, there should only be one firm in the market. C. price exceeds marginal cost and minimum average total cost. D. consumers do not benefit from product differentiation.

C. price exceeds marginal cost and minimum average total cost.

The fact that a monopolistically competitive firm does not produce at the minimum ATC can be viewed as the cost of generating A. economies of scale. B. homogeneous products. C. product differentiation and variety. D. All of the above.

C. product differentiation and variety.

In the long​ run, economic profits for a monopolistically competitive firm are A. significantly more than the profits of a perfectly competitive firm. B. the same as the profits for a monopolist. C. the same as the profits for a perfectly competitive firm. D. slightly more than the profits of a perfectly competitive firm.

C. the same as the profits for a perfectly competitive firm.

Cartels are more likely to fail when A. there are few firms in the market. B. products are very similar. C. there are no barriers to entry. D. it is easy to observe the prices that firms set.

C. there are no barriers to entry.

Chapter 25

Chapter 25

Chapter 26

Chapter 26

How can an oligopoly form when there are network effects and market​ feedback? A. Firms will successfully drive out their competitors when they pick a market leader and match any price changes made by the leader. B. Firms will engage in limit pricing. 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.

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.

Oligopolies may emerge in an industry because of A. barriers to entry. B. mergers. C. economies of scale. D. All of the above.

D. All of the above.

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.

What is a​ cartel? A. It is an association of producers in an industry that agree to set common prices and output quotas to promote competition. B. It is an association of producers in an industry that agree to set common prices to prevent competition. C. It is an association of producers in an industry that agree to set common prices to promote competition. D. 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 prevent competition.

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 collude and charge a high price so that each will make more. B. Neither firm has a dominant strategy because it is unlikely they could act together to charge higher prices and make more. C. 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. D. 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.

D. 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.

A situation where a​ consumer's willingness to use an item depends on how many others use it is A. ​price-leadership. B. a vertical merger. C. a​ positive-sum game. D. a network effect.

D. a network effect.

A negative market feedback refers to A. a tendency for a good or service to come into favor with additional consumers because other consumers have chosen to buy the item. B. a tendency for the consumers to buy a smaller quantity of the product when its price increases. C. a tendency for the consumers to buy a smaller quantity of the product when their income decreases. D. 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 a good or service to fall out of favor with more consumers because other consumers have stopped buying the item.

The monopolistically competitive firm in the diagram is A. earning economic profits equal to zero. B. earning negative economic profits. C. earning positive accounting profits but negative economic profits. D. earning positive economic profits.

D. earning positive economic profits.

The most common reason that oligopolies exist is A. there are a large number of firms. B. diminishing marginal returns. C. regulation. D. economies of scale.

D. economies of scale.

Price collusion is mutually profitable because each firm achieves A. increased sales. B. higher productivity. C. lower costs. D. higher profits.

D. higher profits.

Which of the following market structures do not have​ non-price competition? A. monopolistic competition and pure monopoly B. monopolistic competition and oligopoly C. perfect competition and monopolistic competition D. perfect competition and pure monopoly

D. perfect competition and pure monopoly

For a soft drink a firm is more likely to use A. informational advertising that emphasizes the features of its product. B. informational advertising intended to induce a consumer to try the product. C. a mix of informational and persuasive advertising. 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.

All of the following conditions will make it more likely that firms will be able to enforce a cartel agreement except A. the firms sell nearly homogeneous products. B. there is little fluctuation in prices. C. there are a small number of firms in the industry. D. prices are not easily observed.

D. prices are not easily observed.

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

Psychotherapy represents A. a search​ good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase. B. an experience​ good, possessing qualities that are relatively easy for consumers to assess in advance of their purchase. C. a credence​ good, since people must actually consume before they can determine their qualities. D. an experience​ good, since people must actually consume before they can determine their qualities. E. a search​ good, since people must actually consume before they can determine their qualities. F. a credence​ good, one with qualities that might be difficult for consumers lacking expertise to assess without assistance.

F. a credence​ good, one with qualities that might be difficult for consumers lacking expertise to assess without assistance.

No individual firm in a monopolistically competitive market will advertise.

False

ATC = ?

Total Costs / Q

__________ 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; informational; persuasive; a credence

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

Characterize each of the following as a​ positive-sum game​ (P), a​ zero-sum game​ (Z), or a​ negative-sum game​ (N). 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

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

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

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. If the firm set the​ price, or average​ revenue, of the product equal to the marginal​ cost, the firm would have __________. since the marginal cost is __________ the average cost.

high; decrease; marginal; constant; below; economic losses; less than

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

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

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

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.

​[A] A large number of firms that sell differentiated products that are close substitutes.

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.

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.