Econ 2301 Module 8 Complete Quiz

An example of an oligopoly is: A. the restaurant industry. B. the tobacco industry. C. the beef industry. D. the wheat market.

B

A price-taking firm and a monopoly firm are alike in that: A. both maximize profits by choosing an output where marginal revenue equals marginal cost. B. in the long run, both earn zero economic profits. C. price equals marginal revenue for both. D. price exceeds marginal cost at the profit-maximizing level of output for both.

A

At his current level of output, a monopolist has a Marginal Revenue of $10, a Marginal Cost of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve is upward sloping, the monopolist: A. could increase profit by increasing output B. should exit the market if significant fixed costs have been incurred. C. is producing at the profit-maximizing level of output. D. could increase profit by increasing his price.

A

For a time, either R. J. Reynolds or Phillip Morris raised prices of cigarettes twice a year by about 50 cents per carton. The other firms in the industry later raised their prices by the same amount. Economists call this: A. price leadership. B. a price war. C. producer sovereignty. D. predatory pricing.

A

Say that a monopolist is currently operating on the inelastic region of its demand curve. To maximize its profits, it should: A. raise its prices. B. either raise or lower its prices, depending on how high its marginal cost curve is. C. maintain its current price. D. lower its prices.

A

Three airlines account for most of the air traffic in and out of a local city. If the three airlines joined together in setting fares and air travel schedules, economists would say that they were acting as: A. a cartel, as the three airlines together would attempt to coordinate policies in the local market to jointly maximize profits. B. monopolistic competitors, as each firm would have to differentiate its airline services from its rivals. C. perfect competitors, as each firm would sell travel services at the same fares as the other airlines. D. kinked demand curve oligopolists.

A

Under conditions of oligopoly markets, firms generally don't like to compete based on price. Why? A. Because competing on the basis of price can set off a price war among competitors and significantly reduce profits to the firm. B. Because no producer has a cost advantage in doing so. C. Because consumers rarely spend time making price comparisons between different brands. D. Because price competition is illegal in most states.

A

Which of the following is NOT generally true about a profit-maximizing monopolist? A. The monopolist faces a perfectly elastic demand curve. B. The monopolist chooses output where marginal revenue equals marginal cost. C. The monopolist charges a price that exceeds marginal cost. D. All of the others are true. E. The monopolist can potentially continue to earn economic profits in the long run.

A

Which of the following is NOT potentially a barrier to entry into a product market? A. the absence of economies of scale in the product market B. the control of a crucial input necessary to produce the product C. government licensing of the product's producers D. All of the others are potentially barriers to entry into a product market. E. patent protection on the design of the product

A

Which of the following is true of monopoly but not true of perfect competition? A. Firms can potentially earn economic profits in the long run. B. Firms can potentially earn economic profits in the short run. C. A profit-maximizing firm will shut down if price falls below the average variable cost. D. Total revenue is the product of price times the quantity sold.

A

If a profit-maximizing monopolist finds that marginal cost is increasing and exceeds marginal revenue, it will: A. increase both price and output. B. increase price and decrease output. C. decrease both price and output. D. increase output and decrease price

B

If a regulatory board wanted to make sure that a natural monopoly chose a price resulting in the efficient level of output, it should set a price equal to: A. average fixed cost. B. marginal cost. C. average variable cost. D. average total cost. E. average total cost, plus a ten percent normal return on investment.

B

Government regulation of natural monopolies might cause which problem below? A. decreased number of firms in the market B. lack of influence from special interest groups C. reduced incentives to cut costs D. Creation of excessive profits levels

C

If marginal revenue on the tenth unit of output equals $4 for a non-discriminating, profit-maximizing monopolist, then price: A. can be equal to, less than, or greater than $4. B. must be equal to average total cost. C. is greater than $4. D. equals $4. E. is less than $4.

C

In a typical cartel agreement, the cartel maximizes profit when it: A. behaves as a duopolist. B. is flexible in enforcing production targets. C. behaves as a monopolist. D. behaves as a perfectly competitive firm.

C

Interdependence among firms is characteristic of: A. perfectly competitive markets. B. monopolistically competitive markets. C. oligopoly markets. D. Monopoly markets

C

Monopoly results in a welfare loss because: A. marginal revenue does not equal marginal cost. B. total cost is not minimized. C. the monopolist restricts output below the socially efficient level. D. average variable cost is not minimized.

C

Mutual interdependence means that: A. each firm faces a perfectly inelastic demand curve. B. each firm faces a perfectly elastic demand curve. C. firms must anticipate the possible reaction of rivals to their own economic behavior. D. firms choose price and output simultaneously.

C

The consumer surplus lost because monopolists restrict the production of output represents a welfare loss because: A. it is transferred to producers in the form of profit. B. consumers pay a higher price than they would in a more competitive market. C. society is not using its scarce resources in the best way possible. D. of both a. and b., but not c.

C

A market situation where a small number of sellers compose the entire industry is called: A. monopolistic competition. B. none of the other answers is correct. C. perfect competition. D. oligopoly. E. Monopoly

D

A natural monopoly is likely to arise when: A. any of the others occur. B. a firm controls a crucial input to production. C. the government restricts entry through licensing. D. economies of scale exist over the relevant range of demand. E. Patents provide protection of intellectual property

D

A monopoly industry: A. has very significant barriers to entry. B. faces a downward sloping demand curve. C. produces a product for which there are no close substitutes. D. may earn economic profits or losses in the short run. E. has all of the above characteristics.

E

As the number of firms in an oligopoly ____, the oligopoly becomes more ____. A. decreases; competitive B. decreases; like a monopoly C. increases; like a monopoly D. increases; like perfect competition E. both b. and d.

E

The demand curve of a monopolist is: A. horizontal at the market price. B. kinked because of recognized interdependence with other firms. C. downward sloping and below the marginal revenue curve. D. is identical to the marginal cost curve. E. downward sloping and above the marginal revenue curve.

E

Which of the following is true about price discrimination? A. Price differentials between groups will erode if reselling is easy. B. When there are a number of competing firms, price discrimination is less likely because competitors tend to undercut the high prices charged those discriminated against. C. Quantity discounts are a form of price discrimination which allow a seller to charge a higher price for the first unit than for later units. D. A profit-maximizing seller will charge a higher price for those with a greater willingness to pay, and a lower price for demanders with a lower willingness to pay. E. All of the others are true of price discrimination.

E