ECON 201 Final

Monopolistically competitive firms make economic profits by A) persuading buyers that their product is different from the products of their competitors B) persuading sellers that their product is the same as the products of their competitors C) persuading buyers that their product is the same as the products of their competitors D) persuading sellers that their product is different from the products of their competitors

A) persuading buyers that their product is different from the products of their competitors

Total revenue is A) P/Q B) P-Q C) P*Q D) P+Q

C) P*Q

The U.S. government has used the Sherman Anti-Trust Act, and its partner the ______ Anti-Trust Act of 1914 to prevent monopolies from forming in the first place.

Clayton

One problem with price discrimination in the real world is defining the categories of _______

customers

The monopoly can choose any price it wants True or False?

False, even monopolists are subject to the laws of supply and demand

In a competitive market, marginal _____ is equal to price. For a monopolist, price is greater than marginal _____

revenue; revenue

When no one has an incentive to break the equilibrium by changing his or her strategy, it is called a _________ equilibrium

Nash

When all players in a game have a dominant strategy, the result is called a _______ equilibrium

Nash dominant strategy: when one strategy is always the best for a player to choose, regardless of what other players do

When a monopolist perfectly price discriminates there is no _______ surplus

consumer

Assuming that production involves both fixed and marginal costs, the average total cost curve faced by monopolistically competitive firms is _____-shaped

U

In a ____ market, the equilibrium price and quantity are efficient because they maximize total surplus

competitive

If the price differential between substitutes is too large, consumers will choose the _______ product

least expensive

As long as firms currently in the market are earning profits, _______ firms will _______ the market with products that are very close to substitutes

more; enter

When there is a ______ monopoly, one firm can produce the entire quantity demanded at a lower cost than multiple firms.

natural

Drinking-water supply and natural gas are examples of ______ monopolies.

natural It wouldn't make sense to recreate the underground water pipes or public transit tracks between cities

As long as firms currently in the market are earning ______ economic profits, firms will exit the market until existing firms are no longer earning _______ economic profit

negative; negative

In a _______ competitive market, firms' optimal production is at the _______ point on the ATC curve, which is the _______ scale

perfectly; lowest; efficient

A monopolistically competitive firm can earn ______ economic profits in the short run

positive

From a firm's perspective, the choice to advertise is a _______ investment if the advertised qualities of a product are popular with consumers, and a _______ investment if the advertised qualities are not popular with consumers

positive; bad

An oligopolist willl continue to increase output up to the quantity at which the ________ quantity effect of an additional unit on profits is exactly equal to the _______ price effect

positive; negative

A ______ statement is about how things are. A ______ statement is a statement about how things should be

positive; normative (judgment)

______ pricing is the practice of temporarily slashing prices until rivals are forced out of business

predatory

Product differentiation enables firms in monopolistically competitive markets to produce a good for which there are no exact _______ allowing the firm to behave like a _______

substitutes; monopolist

One common response to natural monopolies is to look for ways to split an industry _____ and introduce competitions into parts of it

vertically

Countries such as the UK that have split the railway industry ______ require active _________ to make sure that different companies do not try to run trains in different directions a the same time

vertically; regulation

Countries such as New Zealand have split the electricity industry ______, to separate the generation of electricity from _______

vertically; supply

In a monopoly, there is _______ loss caused by the transactions that did not take place because the market equilibrium was at a higher price and lower quantity than would be ________

welfare; efficient

In an oligopoly with two firms, both firms do _______ when they compete with each other than when they collude

worse

______ profit means that total revenue is exactly equal to total cost

zero

A strong ______ can be an implicit guarantee of a product's quality

brand

To check the growing power of trusts, in 1890 Congress passed _____ laws

antitrust

Because the market outcomes in a competitive oligopoly are between those of a monopoly and a perfectly competitive market, _______ loss still exists, but it is _______ then when there is a collusion

deadweight; lower

When there are economies of scale, as a firm produces more output, its average costs will

decrease

Advertised messages often have little or nothing to do with the product being advertised True or false?

false, advertised messages often have little or nothing to do with the product being advertised

A monopoly's marginal revenue is equal to price True or false?

false, in a monopoly, MR<P

______ can create monopoly power for firms they own

governments

Monopolistically competitive firms want to sell more because price is ______ than ______ cost, so selling more would add to profits

higher; marginal

Anti-trust action can cause _____ in the market by breaking a large company into several firms that operate at a smaller-than-efficient scale

inefficiency

The need for continual _______ explains why firms in so many industries put so much effort into launching new products and finding new ways to advertise their products

innovation

The profit-maximizing production quantity is at the point where the marginal revenue (MR) curve ______ the marginal cost (MC) curve

intersects

The attractiveness of ______ run profits provides an incentive for monopolies to protect market power

long

The optimal production point for a monopolistically competitive firm in the _______-run market equilibrium will be where the ATC curve touches the _______ curve

long; demand

A negative marginal revenue means that all units sold now bring in a ______ price than they did before, so each additional unit of output _______ total revenue

lower; decreases

For a monopolist, ______ revenue can sometimes be negative

marginal

_______ is the revenue generated by selling each additional unit

marginal revenue

The point at which _______ revenue crosses the quantity axis occurs when _______ revenue is a maximum

marginal; total

A business owner needs to know the type of _________ in which she is engaged in order to know how much freedom she has to set _________ or how much attention to pay to the behavior of other firms

market; prices

A _____ is a firm that is the only producer of a good or service with no close substitutes.

monopoly

Low relative quantity and higher prices are a characteristic of a _______

monopoly

Some economists conclude that the best response to the problems caused by _______ is sometimes no response at all

monopoly

The lack of a close substitute for a product is an essential part of the definition of _____

monopoly

Patents have the effect of increasing _______, and hence profits for the patent-holder.

price

In a competitive market, the additional ________ brought in by one unit is always the _______ of that unit

revenue; price

In oligopoly, the price effect is _________ when there are more firms

smaller

Total revenue from five bicycles is $2,000, and total revenue from four bicycles is $1,800. The marginal revenue in the interval between four and five bicycles is $______

$200

Assuming that production involves both fixed and marginal costs, monopolistically competitive firms face a A) U-shaped average total cost curve B) U-shaped marginal revenue curve C) U-shaped average revenue curve D) horizontal average total cost curve

A) U-shaped average total cost curve

People sometimes criticize anti-trust actions A) as being politically motivated B) as causing more inefficiency than the monopoly C) because they tend to create an unsustainable level of output D) because they are not enforced

A) as being politically motivated B) as causing more inefficiency than the monopoly

In advertising persuades customers that products are more different than they truly are, firms can A) charge a higher markup over marginal cost B) collude with competitors easier C) maximize revenue D) enter the market easier

A) charge a higher markup over marginal cost

In the long run, firms in a monopolistically competitive market face the same situation as firms in a perfectly competitive market in that A) profits are driven to zero B) profits are positive C) profits are negative D) costs are constant

A) driven to zero

In a perfectly competitive market firms operate at their ______. In a monopolistically competitive market firm operate with _______ A) efficient scale; excess capacity B) efficient scale; short run capacity C) short run scale; long run scale D) efficient profit; excess profit

A) efficient scale; excess capacity

A negative marginal revenue means the price effect A) has become bigger than the quantity effect B) has become smaller than the quantity effect C) is equal to the quantity effect

A) has become bigger than the quantity effect price effect: the decrease in total revenue that occurs because the increase in quantity requires a lower price quantity effect: the increase in total revenue due to the money brought in by the sale of additional units

Monopoly and monopolistic competition are the same in that they both A) make economic profits B) have easy entry and exit C) are regulated D) have a product unique to their firm

A) have a product unique to their firm

For a monopoly, the average revenue curve is the same as the A) market demand curve B) firms's supply curve C) firm's marginal revenue curve D) market supply

A) market demand curve

A decision that is profit-maximizing for an individual firm lowers combined profits for the market as a whole in a(n) _________ market A) oligopoly B) monopolistically competitive C) perfectly competitive D) monopoly

A) oligopoly

A market with only a few firms that sell similar products describes A) oligopoly B) monopoly C) perfect competition D) monopolistic competition

A) oligopoly

When economies of scale are significant, A) one firm can achieve a lower cost per unit than would occur with more firms B) marginal revenue is constant C) firms will not complete with each other D) one firm can achieve a higher output than would occur with more firms

A) one firm can achieve a lower cost per unit than would occur with more firms

Because consumers know that firms stand to lose when their brand's reputation is damaged they can conclude that firms with A) strong brands probably have strong quality control B) weak brands probably have high profits C) weak brands probably have lower costs D) strong brands probably have high profits

A) strong brands probably have strong quality control

Regulating a monopolistically competitive market to increase efficiency is difficult because A) there are too many firms in the market to regulate each one B) the firms produce with excess capactiy C) there is too much collaboration between firms D) there are too many slightly different products to regulate each product

A) there are too many firms in the market to regulate each one D) there are too many slightly different products to regulate each product

Average revenue is A) (P-Q)/Q=P B) (P*Q)/Q=P C) (P*Q)/P=P D) (P+Q)/Q=P

B) (P*Q)/Q=P

Monopolistically competitive firms have an interest in persuading customers that their products are unique through A) product sales B) advertising and branding C) group advertising D) collaboration

B) advertising and branding

Barriers to entry include aggressive tactics such as A) advertising B) exclusive agreements C) buying competitors D) studying competitors E) predatory pricing F) amassing stockpiles of product G) competitive collusion

B) exclusive agreements C) buying competitors D) predatory pricing E) amassing stockpiles of product

The steepness of the demand curve is determined A) by the price of the good and the quantity demanded B) in part by the degree of sustainability between products C) by the degree to which a good or service is normal D) by the overall cost of production

B) in part by the degree of sustainability between products marginal revenue is less than price; this in turn means that marginal cost is also less than price at the profit-maximizing quantity

Regulation is often used to control behavior of natural monopolies A) in the market for gemstones B) in the market for utilities C) in perfectly competitive markets D) in the market for factors of production

B) in the market for utilities

If a monopolist produced at the point where P=MC=AR, it would have a A) loss with deadweight loss B) loss with no deadweight loss C) profit with no deadweight loss D) profit with deadweight loss

B) loss with no deadweight loss loss would need to be made up for in taxes AR: average revenue

Natural monopolies pose a particular problem for policymakers because the natural monopolist is able to achieve A) greater output than multiple competing producers would B) lower costs of production than multiple competing producers would C) lower profits than multiple competing producers would D) higher costs of production than multiple competing producers would

B) lower costs of production than multiple competing producers would

Imperfect competition includes the market structures of A) monopolistic competition and monopoly B) monopolistic competition and oligopoly C) monopoly and oligopoly D) monopoly and competition

B) monopolistic competition and oligopoly

Nash equilibrium is significant because when it is reached, A) economic profits are zero B) no one has an incentive to break the equilibrium by changing his strategy C) everyone has an incentive to break the equilibrium by changing his strategy D) no change in output can occur

B) no one has an incentive to break the equilibrium by changing his strategy

A monopoly is a natural monopoly when other firms have A) a similar product that they can market cheaper than the monopolist B) no reason to enter because they would face higher costs of production than the monopoly C) an arrangement with the monopolist to sell their product D) a reason to enter because they would face lower costs of production than the monopoly

B) no reason to enter because they would face higher costs of production than the monopoly

A monopoly reduces the overall welfare of society and earns profit in the process because, compared to a competitive market, A) price is lower B) producer surplus is higher C) total surplus is lower D) consumer surplus is lower E) output is higher F) economic profits are lower

B) producer surplus is higher C) total surplus is lower D consumer surplus is lower

Oligopolies are characterized by A) independence B) product similarity C) small number of firms D) easy entry E) barriers to entry

B) product similarity C) small number of firms E) barriers to entry

The monopoly can control the market by A) forcing other firms to follow their lead B) setting a price C) having multiple companies D) restricting the quantity supplied

B) setting a price D) restricting the quantity supplied

Which of the following are examples of price discrimination? A) different automobile insurance rates B) student discounts C) child discounts D) seasonal price differences E) senior discounts

B) student discounts C) child discounts E) senior discounts

Monopolistic competition is inefficient because A) there is deadweight loss B) there are economic profits C) products are differentiated D) there are fewer firms than in perfect competition

B) there is deadweight loss

In 1999, the U.S. government sued Microsoft alleging that by bundling Internet Explorer with Microsoft Windows, the company was A) unfairly attempting to raise the prices of web browsers B) unfairly attempting to push competing web browsers out of the market C) fairly attempting to push competing web browsers out of market D) unfairly attempting to change the technology in the market

B) unfairly attempting to push competing web browsers out of the market

Profit equals A) (P/ATC)*Q B) (P+ATC)*Q C) (P-ATC)*Q D) (P-ATC)+Q

C) (P-ATC)*Q P: price ATC: average total cost if price is greater than ATC, profits will be positive, even in long run

Predatory pricing, exclusive agreements and inventory stockpilling are used as A) tactic collusion B) perfect competition C) barriers to entry D) cost minimization

C) barriers to entry

Governments can create monopoly power by A) lowering the fixed costs for the firms B) training employees to work in the industry C) by regulating intellectual property rights D) creating a legal prohibition on other firms entering the market E) subsidizing a state-owned enterprise F) raising the fixed costs for the firms

C) by regulating intellectual property rights governments grant patents and copyrights to people who invent or create something D) creating a legal prohibition on other firms entering the market E) subsidizing a state-owned enterprise

If advertising persuades customers that products are, firms can A) enter the market easier B) collude with competitors easier C) charge a higher markup over marginal cost D) maximize revenue

C) charge a higher markup over marginal cost

If the ATC is above the demand curve, it means that A) costs are higher than price, and firms will enter the market B) costs are lower than price, and firms will enter the market C) costs are higher than price, and firms will lose money and exit the market D) revenue is higher than price, and firms will lose money and exit the market

C) costs are higher than price, and firms will lose money and exit the market

For a monopolist, the profit-maximizing price is the price on the _____ curve that corresponds to the profit-maximizing quantity of output A) marginal revenue B) total cost C) demand D) supply

C) demand

Compared to the perfect competition, monopolies are able to earn positive economic profits in the long run because monopoly's profit-maximizing price is A) lower than its marginal costs B) lower than its total costs C) higher than its marginal costs D) higher than its total costs

C) higher than its marginal costs

A monopolistically competitive firm can earn positive economic profits A) in the long run B) in a perfectly competitive industry C) in the short run D) only if there are normal profits

C) in the short run

The profit-maximizing price is the price on the demand curve corresponding to the profit maximizing A) minimum variable cost B) level of profit C) level of output D) average total cost

C) level of output

When there is public ownership of a natural monopoly, the ______ of the profit motive could _______ the publicly owned monopolist's motivation to be more efficient A) loss; increase B) increase; reduce C) loss; reduce

C) loss; reduce

Monopolistic competition describes markets with A) few firms that sell goods and services that are similar, but slightly different B) many firms that sell goods and services that are the same C) many firms that sell goods and services that are similar, but slightly different D) few firms that sell goods and services that are the same

C) many firms that sell goods and services that are similar, but slightly different

The profit-maximizing production quantity of output for a monopoly is the point at which the A) total revenue curve intersects the total cost curve B) average revenue curve intersects the average cost curve C) marginal revenue curve intersects the marginal cost curve D) marginal revenue curve intersects the average cost curve

C) marginal revenue curve intersects the marginal cost curve

For a monopolist, the marginal revenue curve lies below the average revenue curve because A) total revenue is always more than price after the very first unit sold B) marginal revenue is always less than quantity after the very first unit sold C) marginal revenue is always less than price after the very first unit sold D) marginal output is always less than price after the very first unit sold

C) marginal revenue is always less than price after the very first unit sold

As the only producer in the market, a monopoly faces the A) market demand curve, which is horizontal B) market demand curve, which is upward sloping C) market demand curve, which is downward sloping D) firm supply curve, which is downward sloping

C) market demand curve, which is downward sloping

If there were no price effect, then marginal revenue for a monopolist would be determined A) only by the price effect and would be equal to price B) only by the marginal effect C) only by the quantity effect and would be equal to price D) by the quantity and marginal effect

C) only by the quantity effect and would be equal to price

A firm can control the production process if it A) has the lowest cost B) has the greatest profit C) owns a scarce resource needed for production D) owns any resource needed for production

C) owns a scarce resource needed for production

In a perfectly competitive market, the market demand curve ______, but the individual firm faces a ______ demand curve A) vertical; slopes upward B) slopes downward; vertical C) slopes downward; horizontal D) horizontal; slopes downward

C) slopes downward; horizontal

In between perfect competition and monopoly lie two market structures characterized by a _______ firms with differentiated products A) small number or small B) large number of small C) small number of large D) large number of large

C) small number or large

A firm can charge different customers different amounts for the same good, A) when the firm earns profits B) when the buyer has market power C) when the firm has market power D) when products are identical

C) when the firm has market power They can charge higher prices for those willing to pay for the "new" thing and then charge sale prices for people who are willing to wait till something is cheaper.

Marginal revenue is equal to A) (△ in revenue)/(△ in profit) B) (△ in units sold)/(△ in revenue) C) (△ in profit)/(△ in units sold) D) (△ in revenue)/(△ in units sold)

D) (△ in revenue)/(△ in units sold)

The profit-maximizing production quantity is at the point where the A) AC=MC B) MC=MP C) AR=MR D) MC=MR

D) MC=MR

If the marginal revenue of a unit of output is higher than its marginal cost, then an additional unit of output, A) adds to the firm's average cost B) decreases the firm's profit C) adds to the firm's fixed cost D) adds to the firm's profit

D) adds to the firm's profit marginal revenue is the revenue by selling an additional unit

In some industries, competition between two or more firms simply doesn't make much sense because A) diminishing returns are so powerful B) diseconomies of scare are so powerful C) the product is so similar D) economies of scale are so powerful

D) economies of scale are so powerful

Because selling more would add to profits, monoppolistically competitive firms have an incentive to A) sell less B) increase excess capacity C) reduce the differences between products D) engage in advertising and brand promotion

D) engage in advertising and brand promotion

Firms have an incentive to persuade customers that their products cannot easily be substituted with a rival product because product differentiation enables monopolistically competitive firms to A) collaborate with competitors in the short run B) keep making economic profits int he long run C) collaborate with competitors in the long run D) keep making economic profits in short run

D) keep making economic profits in short run

The only relevant difference between the curves for a monopoly and the equivalent ones for a firm in a competitive market is that _____ slope _____ for the monopolist A) marginal and average cost; upward B) total and average revenue; downward C) marginal and total revenue; downward D) marginal and average revenue

D) marginal and average revenue; downward

At quantities lower than the intersection of supply (marginal cost) and demand, total surplus is reduced because A) the decrease in total surplus is less than the increase in consumer surplus B) the increase in total surplus is less than the decrease in producer surplus C) the decrease in consumer surplus i less than the increase in producer surplus D) the decrease in consumer surplus is greater than the increase in producer surplus

D) the decrease in consumer surplus is greater than the increase in producer surplus

From a firm's perspective, the choice to _______ is a trade-off between increasing sales of the product and the cost of _______

advertise; advertising

Consumers can view _______ as a credible signal of product quality

advertising

______ can give high-qualitiy firms a way to credibly signal the quality of their products because it costs money

advertising

One effect of _______ is to provide useful information about products and prices which will increase ________ in a marketplace

advertising; competition

The key characteristic of a monopoly is that there are _____ to entry into the market

barriers

A monopolist can set prices and quantities without fear of being undercut by competitors because A) low costs B) the competition C) advertising D) barriers to entry

barriers to entry

Economies of scale and aggressive business tactics are two examples of A) scarce resources B) political favoritism C) government intervention D) barriers to entry

barriers to entry

To prevent the problem a resale when using price discrimination, there needs to be some way of punishing people who _____ the system

cheat

When a number of firms _______ to make collective production decisions about quantities or prices it is called a cartel

collude

The act of working together to make decisions about price and quantity is ______

collusion

For a monopolist, since price is greater than marginal _____, price is also greater than marginal ______ at the optimal production point

cost; revenue

If advertising persuades customers that products are more different than they truly are, it _______ consumers' willingness to _______ between similar products

decrease; choose

The monopolist can set their own price, but this price must occur along the market _______ curve

demand

The steepness of the ______ curve is determined in part by the degree of substitutablility between products

demand

Product _______ is an essential part of the strategy of many businesses in the real world

differentiation

As long as firms currently in the market are earning negative profits, firms will ______ the market until existing firms are no longer earning negative profits

exit

Except for the very first unit sold, marginal revenue in a monopoly market is always less than the price because the ______ effect always works in the _______ direction of the quantity effect

price; opposite

A monopolistically competitive firm cannot adjust its _______ without causing a change in the _______ consumers demand

price; quantity

Privatizing natural monopolies is based on the ______ motive

profit the loss of the profit motive could reduce the publicly owned monopolist's motivation to improve efficiency and to provide better service or lower costs

One possible solution to limit monopoly power for governments is to run natural monopolies as _______ agencies

public

The point at which marginal revenue crosses the _____ axis occurs when total revenue is maximized

quantity

Average revenue is equal to price at any ______ sold

quantity suppose Billy's Bikes has monthly revenue of $7,500 per month selling 30 bikes; their average revenue is 7500/30=$250

According to the price effect, an additional unit of output raises the total _______ in the market and drives down the market _______

quantity; price

Two primary effects impact a monopolist's marginal revenue curve. These are the ______ effect and the _____ effect

quantity; price