ECON 2302 Exam 3 Review

How does the demand for any one seller's product in perfect competition compare to the market demand for that product?

The demand for any one seller's product is perfectly elastic while the market demand curve is downward sloping.

natural monopoly is

a type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than could two or more firms

A monopolist can make an economic profit in the long run because of A) barriers to entry. B) the relatively inelastic demand for its product. C) the firm's price setting behavior. D) the relatively elastic demand for its product

A) barriers to entry.

If a monopolistically competitive seller's marginal cost is $3.56, the firm will decrease its output if A) its marginal revenue is less than $3.56. B) its marginal revenue is equal to $3.56. C) its marginal revenue is more than $3.56. D) its average total cost is equal to $4.00.

A) its marginal revenue is less than $3.56.

If two duopolists can stick to a cartel agreement to boost their prices, then both A) make greater economic profits than if they did not collude. B) price at marginal cost. C) price below average total cost. D) decrease their economic profits.

A) make greater economic profits than if they did not collude.

Suppose that marginal revenue for a perfectly competitive firm is $20 . When the firm produces 10 units, its marginal cost is $20, its average total cost is $22, and its average variable cost is $17. Then to maximize its profit in the short run, the firm A) should stay open and incur an economic loss of $20. B) must increase its output to increase its profit. C) must decrease its output to increase its profit. D) should shut down.

A) should stay open and incur an economic loss of $20.

An example of a firm in monopolistic competition is A) the many Chinese restaurants in San Francisco. B) the sole cable television company. C) your local water company. D) Kansas Power and Light, the sole provider of electricity in Kansas City

A) the many Chinese restaurants in San Francisco.

The relationship between marginal revenue and elasticity is A) when demand is elastic, marginal revenue is positive and when demand is inelastic, marginal revenue is negative. B) whenever the elasticity is positive, marginal revenue is positive. C) whenever the elasticity is negative, marginal revenue is positive. D) when demand is elastic, marginal revenue is negative and when demand is inelastic, marginal revenue is positive.

A) when demand is elastic, marginal revenue is positive and when demand is inelastic, marginal revenue is negative.

How does the demand for any one seller's product in perfect competition compare to the market demand for that product? A) The demand for any one seller's product is perfectly elastic while the market demand curve is downward sloping. B) The demand for any one seller is proportionally smaller but otherwise identical to the market demand. C) They are identical. D) There is no demand for any one seller's competitively sold product.

B) The demand for any one seller is proportionally smaller but otherwise identical to the market demand.

For a firm in monopolistic competition, the efficient scale is the amount of output at which ________ is a minimum. A) fixed cost B) average total cost C) average variable cost D) average fixed cost

B) average total cost

In the long run, firms in perfectly competitive market produce at a level that is ________ the efficient scale of output. A) less than B) equal to C) more than D) not comparable to

B) equal to

Consider a perfectly competitive market that was in a long-run equilibrium when a permanent increase in demand occurs. Which of the following will occur as a result? i. The existing firms will start to earn an economic profit. ii. New firms will be motivated to enter the market. iii. Some firms that cannot meet the new demand will exit the market. A) i, ii and iii B) i and ii only C) ii and iii only D) iii only

B) i and ii only

Price discrimination occurs when a firm A) charges customers different prices for different goods. B) is able to sell different units of a good at different prices. C) charges customers the same price for different goods. D) can determine which of the many market equilibrium prices it will charge.

B) is able to sell different units of a good at different prices.

When a firm is able to engage in perfect price discrimination, its marginal revenue curve A) lies below its demand curve. B) is the same as its demand curve. C) lies above its demand curve. D) is the same as its supply curve.

B) is the same as its demand curve.

Even though four firms can profitably sell hotdogs downtown, the government licenses only two firms. This market is a A) natural duopoly. B) legal duopoly. C) natural monopoly. D) legal monopoly.

B) legal duopoly.

The focus of antitrust legislation is to A) encourage cartels to form because they are easier to regulate. B) maintain competition. C) force society to act in the best interest of producers. D) limit the power of regulatory bodies.

B) maintain competition.

Economists use game theory to analyze strategic behavior, which takes into account A) monopoly situations. B) the expected behavior of others and the recognition of mutual interdependence. C) the price-taking behavior of oligopolists.D) non-price competition

B) the expected behavior of others and the recognition of mutual interdependence.

A cartel is A) a market structure with a small number of large firms. B) a market structure with a large number of small firms. C) a group of firms acting together to raise price, decrease output, and increase economic profit. D) a market with only two firms.

C) a group of firms acting together to raise price, decrease output, and increase economic profit.

If a firm, Best Computer Buys, requires its customers to buy software from it whenever the customers purchase a computer, the company's policy is called A) an exclusive deal. B) a territorial confinement. C) a tying arrangement. D) pricing discrimination.

C) a tying arrangement.

Because the number of firms in monopolistic competition, A) each firm has a large market share B) it is possible for the firms to collude. C) no one firm can dominate the market. D) one firm has the ability to dictate market conditions

C) no one firm can dominate the market.

Product differentiation allows a firm to compete with another firm on the basis of A) efficiency. B) elasticity. C) quality, price, and marketing. D) the level of output and the price.

C) quality, price, and marketing.

When a monopolistically competitive firm's demand curve shifts leftward, what happens to its marginal revenue curve? A) Nothing, the marginal revenue curve is unchanged. B) It disappears. C) It shifts rightward.D) It shifts leftward.

D) It shifts leftward.

In a perfectly competitive market, one farmer's barley is A) completely different from another farmer's barley. B) a monopolized product in that farmer's local market. C) a monopolized product in the national market. D) a perfect substitute for another farmer's barley.

D) a perfect substitute for another farmer's barley.

A perfectly competitive firm's short-run supply curve is A) horizontal at the market price. B) its total cost curve above the AVC. C) its marginal cost curve below the marginal revenue curve. D) its marginal cost curve above the AVC curve.

D) its marginal cost curve above the AVC curve.

The rutabaga market is perfectly competitive. Research is published claiming that eating rutabagas leads to gaining weight and so the demand for rutabagas permanently decreases. The permanent decrease in demand results in a A) lower price, economic losses by rutabaga farmers, and entry into the market. B) higher price, economic losses by rutabaga farmers, and exit from the market. C) higher price, economic profits for rutabaga farmers, and entry into the market. D) lower price, economic losses by rutabaga farmers, and exit from the market.

D) lower price, economic losses by rutabaga farmers, and exit from the market.

In an oligopoly, output is A) less than the output in monopoly. B) greater than the output in perfect competition. C) in all circumstances the same as the output in perfect competition. D) somewhere between the output in monopoly and that in perfect competition outcomes.

D) somewhere between the output in monopoly and that in perfect competition outcomes.

A monopoly produces a product ________ and there ________ barriers to entry into the market. A) identical to its many competitors; are B) with no close substitutes; are no C) identical to its many competitors; are no D) with no close substitutes; are

D) with no close substitutes; are

To maximize its profit, a perfectly competitive firm produces so that ________ and a single-price monopoly produces so that ________.

MR = MC; MR = MC

sunk cost is

a cost that has already been committed and cannot be recovered

monopoly is

a firm that is the sole seller of a product without any close substitutes

When an oligopoly market reaches a Nash equilibrium,

a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

monopolistic competition is

a market structure in which many firms sell products that are similar but not identical

Oligopoly is

a market structure in which only a few sellers offer similar or identical products

competitive market is

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

Mylan Pharmaceuticals holds a patent on the EpiPen - designed to inject epinephrine into shock victims. In 2016, Mylan received criticism for charging $600 for this life-saving drug. The market for EpiPens is considered ________ which means that the price of an Epipen ________ its marginal cost.

a monopoly; is greater than

he U.S. Postal Service's monopoly on first-class mail service is the result of

a public franchise.

In a market characterized by oligopoly: a) firms will earn the highest profit when they cooperate and behave like a monopolist b) firms will always collude with each other c) firms will earn lower profits when they collude with each other d) firms will always end up maximizing the total profits that are earned in the market

a) firms will earn the highest profit when they cooperate and behave like a monopolist

An outcome in which all players choose the best strategy they can, given the choices of all other players a. A Nash equilibrium b. Collusion c. Dominant strategy d. Prisoner's dilemma

a. A Nash equilibrium

Excess capacity is a. an example of the inefficiencies of monopolistically competitive markets. b. a short-run problem but not a long-run problem. c. a characteristic of rising average total cost curves. d. Both a and b are correct.

a. an example of the inefficiencies of monopolistically competitive markets

Patents, copyrights, and trademarks a. are examples of government-created monopolies. b. are examples of subsidies given to the natural monopolist. c. allow their owners to charge lower prices. d. Anti-trust laws.

a. are examples of government-created monopolies

In general, game theory is the study of a. how people behave in strategic situations. b. how people behave when the possible actions of other people are irrelevant. c. oligopolistic markets. d. all types of markets, including competitive markets, monopolistic markets, and oligopolistic markets.

a. how people behave in strategic situations

In a perfectly competitive market, at the profit-maximizing level of output, a. marginal revenue equals marginal cost. b. marginal revenue equals average variable cost. c. marginal revenue equals average total cost. d. average revenue equals average total cost.

a. marginal revenue equals marginal cost

The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which a. marginal revenue is equal to marginal cost. b. average total cost is equal to marginal revenue. c. average total cost is equal to price. d. average revenue exceeds average total cost.

a. marginal revenue is equal to marginal cost.

Antitrust laws allow the government to a. prevent mergers. b. break up companies. c. promote competition. d. All of the above are correct.

a. prevent mergers.

Entry into a competitive market by new firms will increase the a. price of the good. b. profits of existing firms. c. supply of the good. d. cost of producing the good.

a. price of the good.

In order to be successful, a cartel must

agree on the total level of production and on the amount produced by each member.

An equilibrium occurs in a game when

all players follow a strategy that they have no incentive to change.

A natural monopoly

arises when one firm can meet the entire market demand at a lower average total cost than two or more firms.

As a group, oligopolists would always be better off if they would act collectively

as a single monopolist.

When consumers are exposed to additional choices that result from the introduction of a new product in monopolistic competitive market, a. their welfare will be lower as a result of their having to make additional choices. b. a product-variety externality is said to occur. c. an advertising externality is said to occur. d. consumers are likely to experience negative consumption externalities.

b. a product-variety externality is said to occur.

For a monopolistically competitive firm, a. marginal revenue and price are the same. b. average revenue and price are the same. c. at the profit-maximizing quantity of output, price equals marginal cost. d. at the profit-maximizing quantity of output, price equals the minimum of average total cost.

b. average revenue and price are the same.

The free entry and exit of firms in a monopolistically competitive market guarantees that a. both economic profits and economic losses can persist in the long run. b. both economic profits and economic losses disappear in the long run. c. economic profits, but not economic losses, can persist in the long run. d. economic losses, but not economic profits, can persist in the long run

b. both economic profits and economic losses disappear in the long run

The prisoners' dilemma provides insights into the a. easiness of maintaining cooperation. b. disadvantages of not having cooperation. c. benefits of government ownership of monopoly. d. ease with which oligopoly firms maintain high prices.

b. disadvantages of not having cooperation.

When a firm's average total cost curve continually declines, the firm is a a. government-created monopoly. b. natural monopoly. c. revenue monopoly. d. All of the above are correct

b. natural monopoly.

In the long run, each firm in a competitive industry earns a. zero accounting profits b. zero economic profits c. positive economic profits d. positive, negative, or zero economic profits.

b. zero economic profits

A monopolist can make an economic profit in the long run because of

barriers to entry.

A monopolistically competitive market has characteristics that are similar to

both a monopoly and a competitive firm.

In which of the following market structures is(are) there a large number of sellers? (i) monopolistic competition(ii)perfect competition(iii)oligopoly

c. (i) and (ii) only

Which of the following goods are not likely to be sold in monopolistically competitive markets? a. jeans b. books c. Cable service d. clocks

c. Cable service

Business stealing externality occurs in which type of market a. Oligopoly b. Monopoly c. Monopolistic competition d. Perfect competition

c. Monopolistic competition

As a group, oligopolists would always be better off if they would act collectively a. as if they were each seeking to maximize their own individual profits. b. in a manner that would prohibit collusive agreements. c. as a single monopolist. d. as a single perfectly competitive firm.

c. as a single monopolist.

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above a. average fixed cost. b. average variable cost. c. average total cost. d. average revenue.

c. average total cost.

In which of the following markets is economic profit driven to zero in the long run? a. oligopoly b. monopoly c. monopolistic competition d. cartels

c. monopolistic competition

The price effect is smaller when there are a. less firms b. more demand c. more firms d. less demand

c. more firms

Financial aid to college students is an example of a. Consumer welfare. b. deadweight loss. c. price discrimination d. subsidies.

c. price discrimination

In a game, a dominant strategy is a. the best strategy for a player to follow only if other players are cooperative. b. a strategy that must appear in every game. c. the best strategy for a player to follow, regardless of the strategies followed by other players. d. a strategy that leads to one player's interests dominating the interests of the other players.

c. the best strategy for a player to follow, regardless of the strategies followed by other players.

A distinguishing feature of an oligopolistic industry is the tension between

cooperation and self interest.

The outcome of a colluding oligopoly is a. More efficient than monopoly b. Less efficient than that of monopolist c. More efficient than competitive oligopoly d. Same as monopolist

d. Same as monopolist

Monopolies are socially inefficient because the price they charge is a. equal to demand. b. above demand . c. equal to marginal revenue. d. above marginal cost.

d. above marginal cost.

A distinguishing feature of an oligopolistic industry is the tension between a. profit maximization and cost minimization. b. short-run decisions and long-run decisions. c. producing a small amount of output and charging a price above marginal cost. d. cooperation and self interest.

d. cooperation and self interest

Firms exit a competitive market when they incur an economic loss. In the long run, this exit means that the economic losses of the surviving firms..

decrease until they equal zero.

Entry and exit drive each firm in a monopolistically competitive market to a point of tangency between its

demand curve and its average total cost curve.

In an oligopoly, each firm knows that its profits

depend on both how much output it produces and how much output its rival firms produce

A firm in a monopolistically competitive market faces a

downward-sloping demand curve because the firm's product is different from those offered by other firms.

An agreement between two duopolists to function as a monopolist usually breaks down because

each duopolist wants a larger share of the market in order to capture more profit.

The key idea behind price discrimination is to convert consumer surplus into

economic profit.

In a long-run equilibrium,

excess capacity applies to monopolistically competitive firms but not to competitive firms.

Which of the following is a characteristic of monopolistic competition?

free entry

The prisoners' dilemma game

has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other.

A dominant strategy is one that

is best for the player, regardless of what strategies other players follow.

With perfect price discrimination, the level of output

is the same as the amount produced in a perfectly competitive market.

Monopolistic competition is an inefficient market structure because

it has a deadweight loss, just as monopoly does.

We know that a perfectly competitive firm is a price taker because

its demand curve is horizontal.

A perfectly competitive firm's short-run supply curve is

its marginal cost curve above the AVC curve.

If a monopoly wants to sell a greater quantity of output, it must

lower its price.

A monopolistically competitive industry is characterized by

many firms selling products that are similar but not identical.

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market?

monopolistic competition

As firms exit a monopolistically competitive market, profits of remaining firms

rise, and product diversity in the market decreases.

Copy of In the language of game theory, a situation in which each person must consider how others might respond to his or her own actions is called a

strategic situation.

On a vacation to China, you find yourself eating every meal at the local Burger King rather than buying a meal from one of the street vendors. Your traveling companion claims that you are irrational, since you never eat Burger King hamburgers when you are home, and Burger King's hamburgers cost more than the meals prepared and sold by China's street vendors. An economist would most likely explain your behavior by suggesting that

the Burger King brand name suggests consistent quality.

A study of the market for optometrists' services in the 1960s showed that

the average price of eyeglasses would decrease if the legal restrictions on advertising by optometrists were removed.

price discrimination is

the business practice of selling the same good at different prices to different customers

marginal revenue is

the change in total revenue from an additional unit sold

average revenue is

total revenue divided by the quantity sold

An example of a monopoly would be

the local water company.

A business-stealing externality is

the negative externality associated with entry of new firms in a monopolistically competitive market.

A firm operating in a monopolistically competitive market can earn economic profits in

the short run but not in the long run.

The relationship between marginal revenue and elasticity is

when demand is elastic, marginal revenue is positive and when demand is inelastic, marginal revenue is negative.

A monopoly produces a product ________ and there ________ barriers to entry into the market.

with no close substitutes; are