ECON Exam 3

20 - When J.K. Rowling exerts copyright ownership of her literary works, she creates a monopoly by restricting A. the number of inventors. B. unit production costs. C. entry into the market. D. demand for the product.

C

perfect competition demand curve

Horizontal (perfectly elastic)

monopoly demand curve

downward sloping

Oligopoly Demand Curve

downward sloping or kinked

11 - The demand curve as perceived by a perfectly competitive firm is __________. A. flat B. downward sloping C. upward sloping D. hump shaped

A

12 - The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's ability to A. sell any quantity it wishes at the prevailing market price. B. raise its price without losing all of its customers. C. choose any combination of price and quantity. D. lose fewer customers than a monopoly that raised its prices.

A

16 - Why are the underlying economic meanings of the perceived demand curves for a monopolist and monopolistic competitor different? A. a monopolist faces the market demand curve and a monopolist competitor does not B. a monopolist competitor faces the market demand curve and a monopolist does not C. because the demand curve for a monopolistic competitor is upward sloping D. because the demand curve perceived by the monopolist is flatter than that of a monopolist Competitor

A

19 - If oligopolists compete hard against each other, A. they end up acting very much like imperfect competitors. This file is copyright 2018, Rice University. All Rights Reserved. B. costs for all are driven up. C. zero profits result for all. D. they end up acting very much like monopolistic competitors.

A

20 - If oligopolistic firms banded together with the intention of acting like a monopoly, it would likely result in their being able to A. divide up the monopoly level of profit amongst themselves. B. hold down output in the short-run. C. charge a higher price in the short-run. D. both b and c above are correct.

A

5 - A __________exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve. A. natural monopoly B. monopoly C. oligopoly D. monopolistic

A

5 - An _____________ is calculated by subtracting the firm's costs from its total revenues, ___________. A. accounting profit; excluding opportunity cost B. accounting profit; including opportunity cost C. economic profit; excluding opportunity cost D. opportunity cost; including economic profit

A

9 - Oligopoly firms acting individually may seek to gain profits_________ . A. by expanding levels of output and cutting prices B. by selling products that are distinctive in some way C. by having a mini-monopoly on a particular brand name D. by having a mini-monopoly or through tough competition

A

A fundamental source of monopoly market power arises from a. barriers to entry. b. perfectly elastic demand. c. availability of "free" natural resources, such as water or air. d. perfectly inelastic demand.

A

Antitrust laws in general are used to a. prevent oligopolists from acting in ways that make markets less competitive. b. encourage oligopolists to pursue cooperative-interest at the expense of self-interest. c. encourage frivolous lawsuits among competitive firms. d. encourage all firms to cut production levels and cut prices.

A

If a monopolist sells 100 units at $8 per unit and realizes an average total cost of $6 per unit, what is the monopolist's profit? a. $200 b. $600 c. $800 d. $400

A

In a monopolistically competitive market, a. firms can enter or exit the market without restrictions. b. there are only a few sellers. c. each firm produces a product that is essentially identical to the products of other firms in the market. d. each firm takes the price of its product as given.

A

In markets characterized by oligopoly, a. the oligopolists earn the highest profit when they cooperate and behave like a monopolist. b. collective profits are always lower with cartel arrangements than they are without cartel arrangements. c. collusive agreements will always prevail. d. pursuit of self-interest by profit-maximizing firms always maximizes collective profits in the market.

A

In the long run, a. competitive firms' profits are zero. b. competitive firms' ATC curves shift upward or downward to ensure that all demand is satisfied. c. the number of firms in the market is fixed. d. competitive firms' variable costs are zero.

A

Suppose that a market that is a natural monopoly has three producers providing the good to this market. This situation will a. ​result in higher average costs for each producer than if there were only a single producer. b. result in a more efficient outcome than the market with fewer producers. c. ​result in lower prices for consumers under all circumstances. d. ​result in all firms taking full advantage of economies of scale in the production of the good.

A

Table 15-10 The monopolist faces the following demand curve: Price Quantity $10 5 $9 10 $8. 16 $7. 23 $6. 31 $5. 45 $4. 52 $3. 60 Refer to Table 15-10. If the monopolist has total fixed costs of $40 and a constant marginal cost of $5, what is the profit-maximizing level of output? :a. 16 units b. 31 units c. 7 units d. 23 units

A

The competitive firm's short-run supply curve is its a.marginal cost curve, but only the portion above the minimum of average variable cost. b. marginal cost curve. c.marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost. d.marginal cost curve, but only the portion above the minimum of average total cost.

A

The entry of new firms into a competitive market will a. increase market supply and decrease market price. b. increase market supply and increase market price. c. decrease market supply and decrease market price. d. decrease market supply and increase market price.

A

The output effect describes the situation when a monopolist sells more output and, all else equal, total revenue :a. increases. b. is maximized. c. decreases. d. is unchanged.

A

The term shutdown a.refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make. b.refers to a long-run decision that a firm might make, whereas the term exit refers to a short-run decision that a firm might make. c. and the term exit both refer to long-run decisions that a firm might make. d. and the term exit both refer to short-run decisions that a firm might make.

A

Total profit for a firm is calculated as a. (price minus average cost) times quantity of output. b. marginal revenue minus average total cost. c. average revenue minus average total cost. d. marginal revenue minus marginal cost.

A

When the market for a good is a natural monopoly, this results in a. ​dominance by a single producer of the good. b. ​improved product choice for consumers. c. ​increased entry by new producers of the good. d. ​many producers charging low prices for the good.

A

Which describes a firm in the long run that is making a profit? a. More firms will enter this market and each firm will have a smaller share of the total market demand, shifting this firm's demand curve to the left. b. More firms will enter this market and each firm will have a larger share of the total market demand, shifting this firm's demand to the right. c. Firms will exit this market and each firm will have a larger share of the total market demand, shifting this firm's demand to the right. d. Firms will exit this market and each firm will have a smaller share of the total market demand, shifting this firm's demand to the left.

A

Which of the following goods is most likely to be associated with monopolistic competition? a. ​Cookies b. ​Wheat c. ​Gasoline d. ​Milk

A

Which of the following is an example of a barrier to entry? a. John obtained a copyright for the song he wrote and recorded. b. Matthew offers free samples of his latest flavored coffee drink to entice customers to buy a cup. c. Luke charges a higher hourly price to business students than to liberal arts students for his economics tutoring. d. Mark charges a lower price to students than to faculty for his tattoo services.

A

Which of the following is the most distinguishing characteristic of a monopolistically competitive industry? a. ​Product differentiation b. ​One firm controls the industry c. ​A small number of firms dominate the market d. ​Market barriers

A

Which of the following represents the firm's long-run condition for exiting a market? a. exit if P < ATC b. exit if MR < MC c. exit if P < MC d. exit if P < FC

A

Which of the following represents the firm's short-run condition for shutting down? a. shut down if TR < VC b. shut down if P < ATC c. shut down if TR < FC d. shut down if TR < TC

A

Why does a firm in a competitive industry charge the market price? a. If a firm charges less than the market price, it loses potential revenue. b. If a firm charges more than the market price, it loses all its market power. c. The firm can only sell limited number of units of output, so it wants to sell at the market price in order to lower its costs. d. All of the above are correct.

A

Oligopoly

A market structure in which a few large firms dominate a market

13 - In the_______ , the perfectly competitive firm will react to losses by________ A. short run; reducing production or shutting down B. long run; reducing production or shutting down C. short run; increasing physical inputs D. long run; increasing capital inputs

B

13 - The marginal revenue curve for a monopolist the market demand curve. A. always rises above B. always lies beneath C. always runs parallel D. always is the same

B

17 - The first step to be undertaken by a profit-maximizing monopolistic competitor wanting to decide what price to charge is to A. determine total revenue, total cost, and profit B. select the profit maximizing quantity to produce C. determine what price to charge for the product D. determine average costs, total revenue, and profit

B

18 - Which of the following denotes the typical shape of the monopolist's total cost curve? A. total costs decrease and become flatter as output rises B. total costs rise and grow steeper as output rises C. higher output levels create the typical downward sloping cost curve D. total costs are typically constant and are shown by a straight horizontal

B

6 - Economic profit can be derived from calculating total revenues minus all of the firm's costs, A. excluding its opportunity costs. B. including its opportunity costs. C. including its marginal revenue. D. excluding its marginal revenue.

B

7 - A natural monopoly occurs when the quantity demanded is_______ the minimum quantity it takes to be at the bottom of the long-run average cost curve. A. greater than B. less than C. equal to D. a or c above

B

A monopolist faces the following demand curve: Quantity Price 0 $30 1 $27 2 $24 3 $21 4 $18 5 $15 6 $12 7 $9 8 $6 9 $3 10 $0 Refer to Table 15-20. If a monopolist faces a constant marginal cost of $20, how much output should the firm produce in order to maximize profit? a. 3 units b. 2 units c. 4 units d. 5 units

B

A monopolistically competitive firm a. charges a price that is equal to marginal cost. b. experiences a zero profit in the long run. c. produces at the efficient scale in the long run. d. All of the above are correct.

B

A monopolistically competitive firm is currently charging a price of $10 and producing 12,000 units/month. It faces monthly fixed costs of $15,000 and has an average variable cost of $6/unit. In the long run, we would expect: a. ​The price will rise and output will fall b. ​The price will fall and output will fall c. ​The price will fall and output will rise d. ​The firm to go out of business

B

If the distribution of water is a natural monopoly, then (i) multiple firms would likely each have to pay large fixed costs to develop their own network of pipes. (ii) allowing for competition among different firms in the water-distribution industry is efficient. (iii) a single firm can serve the market at the lowest possible average total cost. a. (iii) only b. (i) and (iii) only c. (i) and (ii) only d. (ii) and (iii) only

B

In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50. a. In the short run firms will continue to operate, but in the long run firms will leave the market. b. New firms will likely enter this market to capture some of the economic profits. c. In the short run firms will shut down, and in the long run firms will leave the market. d. The firm will earn zero profits in both the short run and long run.

B

In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run? a. $1 per unit b. $2 per unit c. $0 per unit d. $3 per unit

B

In a particular town, Comvision and Veriview are the only two providers of cable TV service. Comvision and Veriview constitute a a. Nash industry, whether they collude or not. b. duopoly, whether they collude or not. c. monopolistically competitive market if they charge the same price. d. cartel, whether they collude or not.

B

OPEC is able to raise the price of its product by :a. increasing the supply of oil above the competitive level. b. setting production levels for each of its members. c. tying. d. imposing resale price maintenance agreements on members.

B

Once a cartel is formed, the market is in effect served by a. imperfect competition. b. a monopoly. c. monopolistic competition. d. an oligopoly.

B

Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. Refer to Scenario 14-2. At Q = 1,000, the firm's profits equal a. -$5,000. b. $5,000. c. $10,000. d. $2,500.

B

The laws governing patents and copyrights a. eliminate the need for firms to engage in research and development. b. promote monopolies. c. are intended to serve private interests, not the public's interest. d. have costs but not benefits.

B

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

Which of the following examples illustrates an oligopoly market? a. a farmers' market with many individuals selling sweet corn and tomatoes b. a city with two firms who are licensed to sell school uniforms for the local schools c. a city whose electrical service is provided by one electric co-operative d. a city with many independently-owned hair styling salons

B

Which of the following is not a characteristic of a perfectly competitive market? a. Firms produce identical goods. b. Individual firms are price setters. c. Firms are price takers. d. Firms are able to sell all of the output that they choose to produce.

B

17 - If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the____ and the vertical axis will represent______ A. price, measured in dollars; quantity of goods produced B. total costs measured in dollars; quantity of goods produced C. quantity produced; both total revenue and total costs, measured in dollars. D. quantity produced; total revenue and total variable costs, measured in dollars.

C

10 - In the ___________, the perfectly competitive firm will seek out__________. A. long run; the quantity of output where profits are highest B. short run; profits by ignoring the concept of total cost analysis C. short run; the quantity of output where profits are highest D. long run; methods to reduce production and shut down

C

12 - For a monopolistic firm, the demand for its product is A. unitary elastic B. completely elastic C. completely inelastic D. neither b or c

C

13 - If a monopoly or a monopolistic competitor raises their prices, the quantity demanded____. A. will expand B. stays the same C. will decline D. will decline in the short run

C

14 - The perceived demand for a monopolistic competitor A. is steep. B. is flat .C. takes competitors into account. D. disregards competitors.

C

15 - When a firm pursues a predatory pricing strategy, it does so A. to hire more staff to lower unemployment. B. to increase supply to benefit consumers. C. to maximize profits in the long run. D. to discourage short run competition.

C

9 - Which one of the following is the most accurate description of a monopolist? A. a sole producer of a narrowly defined product class, such as brown, Grade A eggs produced in Eagle County, Colorado B. a firm that is very large relative to all its competitors within a narrow product class C. a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry D. a large, multinational firm that produces a single product in a narrow product class

C

A benefit of a monopoly is a. efficient production. b. decreasing long-run marginal costs. c. profit that can be invested in research and development. d. All of the above are correct.

C

A competitive firm's short-run supply curve is part of which of the following curves? a. average total cost b. average variable cost c. marginal cost d. marginal revenue

C

A government-created monopoly arises when a. government spending in a certain industry gives rise to monopoly power. b. the government exercises its market control by encouraging competition among sellers. c. the government gives a firm the exclusive right to sell some good or service. d. Both a and c are correct.

C

Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22.Given this information, what should the firm do? a. More information is needed to determine the firm's next step. b. Decrease output below 200 units, since a lower output will result in the profit maximizing output level. c. Increase output beyond 200 units, since a higher output will yield the profit maximizing output level. d. Continue to produce 200 units, because this maximizes profits.

C

If "too much choice" is a problem for consumers, it would occur in which market structure(s)? a. monopoly b. perfect competition and monopolistic competition c. monopolistic competition d. perfect competition

C

If firms are competitive and profit maximizing, the price of a good equals the a. average total cost of production. b. fixed cost of production. c. marginal cost of production. d. total cost of production.

C

In an oligopoly, each firm knows that its profits a. depend only on how much output it produces. b. depend only on how much output its rival firms produce. c. depend on both how much output it produces and how much output its rival firms produce. d. will be zero in the long run because of free entry.

C

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to a. decrease by less than 20 percent. b. decrease by more than 20 percent. c. remain unchanged. d. increase.

C

Suppose that a firm in a competitive market is currently maximizing its short-run profit at an output of 50 units. If the current price is $9, the marginal cost of the 50th unit is $9, and the average total cost of producing 50 units is $4, what is the firm's profit? a. $200 b. $0 c. $250 d. $450

C

Table 15-16A monopolist faces the following demand curve: Price Quantity $10 5 $9 10 $8 16 $7 23 $6 31 $5 45 $4 52 $3 60 Refer to Table 15-16. The monopolist has total fixed costs of $40 and a constant marginal cost of $5. At the profit-maximizing level of output, the monopolist's average total cost is a. $5.82. b. $6.74. c. $7.50. d. $9.00.

C

The story of the prisoners' dilemma shows why a. predatory pricing is clearly not in society's best interest. b. oligopolies can fail to act independently, even when independent decision-making is in their best interest. c. oligopolies can fail to cooperate, even when cooperation is in their best interest. d. economists are unanimous in condemning resale price maintenance, since it inevitably reduces competition.

C

The table represents the demand information for a firm in a competitive market. Quantity Total Revenue 8. $120 9. $135 10 $150 11 $165 12 $180 13 $195 Refer to Table 14-16. For this firm, the price is a. $10 b. $120 c. $15 d. $5

C

When a competitive firm doubles the quantity of output it sells, its a. profits must increase. b. marginal revenue doubles. c. total revenue doubles. d. average revenue doubles.

C

Which of the following would be most likely to have monopoly power? a. an online bookstore b. a grocery store c. a municipal water company d. a local restaurant

C

16 - When I'Ma Gold Miner chooses what quantity of gold each of it/s mines will produce over the next 12 months, this quantity, along with the prices prevailing in the market for output and inputs, will A. determine the company's annual revenue, variable costs and its profits. B. no longer be dictated by the forces of demand and supply. C. have no effect on the market forces of demand and supply. D. determine the company's total revenue, total costs, and its profits.

D

18 - Which of the following represents a difference in the process by which a monopolistic competitor and a monopolist make their respective decisions about quantity and price? A. only the monopolist competitor faces a downward-sloping demand curve B. the monopolist's perceived demand curve is market demand C. the monopolist competitor's perceived demand curve is market demand D. a monopolist need not fear entry and also selection b above

D

19 - In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect___________ and____________ . A. total revenue; total cost B. marginal revenue; marginal cost C. total revenue; marginal cost D. marginal revenue; total cost

D

19 - When a monopolist increases sales by one unit, A. it gains some marginal revenue from selling that extra unit. B. more low priced sales cause negative marginal revenues. C. every other unit must now be sold at a lower price. D. it loses some marginal revenue and all of the above.

D

4 - In economics, the term "shutdown point" refers to the point where the A. marginal cost curve crosses the total revenue curve. B. average variable cost curve crosses the total revenue curve.\ C. average variable cost curve crosses the marginal cost curve. D. marginal cost curve crosses the average variable cost curve.

D

5 - If the CEO of I'Ma Big Bank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are A. larger than the payoffs that will be received. B. smaller than the payoffs that will be perceived. C. smaller than the rewards from pursuing self-interest. D. larger than the rewards from pursuing self-interest.

D

A firm that is a natural monopoly a. is not likely to be concerned about new entrants eroding its monopoly power. b. is taking advantage of economies of scale. c. would experience a higher average total cost if more firms entered the market. d. All of the above are correct.

D

Because oligopoly markets have only a few sellers, the actions of any one seller a. do not affect other sellers in the market. b. can have a large impact on the profits of other sellers in the market. c. will affect how other firms behave in the market. d. Both b and c are correct.

D

Cartels are difficult to maintain because a. cartel agreements are conducive to monopoly outcomes. b. firms pay little attention to the decisions made by other firms. c. antitrust laws are difficult to enforce. d. there is always tension between cooperation and self-interest in a cartel.

D

Cartels are difficult to maintain because a. ​the number of firms is always large. b. ​the monopoly output is very difficult to determine. c. ​costs to the firms in a cartel are continually rising. d. ​each firm has an incentive to deviate from its agreed output level.

D

Game theory is useful to analyze oligopoly markets because a. ​the market is comprised of a single firm. b. ​each firm produces a differentiated product. c. ​each firm is a price taker. d. ​the firms in the market engage in strategic behavior.

D

If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station a. has little or no market power. b. is small relative to the size of the gasoline market. c. is a competitive firm. d. All of the above are correct.

D

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $4.50. a. New firms will likely enter this market to capture any remaining economic profits. b. In the short run firms will shut down, and in the long run firms will leave the market. c. The firm will earn zero profits in both the short run and long run. d. In the short run firms will continue to operate, but in the long run firms will leave the market.

D

In which of the following market structures can a firm earn an economic profit in the short run? a. ​Perfect competition b. ​Monopolistic competition c. ​Monopoly d. ​All of these market structures can earn an economic profit in the short run

D

One of the defining characteristics of a perfectly competitive market is a. significant advertising by firms to promote their products. b. a large number of buyers and a small number of sellers. c. a small number of sellers. d. a similar product.

D

Perfectly competitive markets are characterized by a. conditions that presume that each firm produces a unique product. b. conditions that force firms to advertise their product heavily, to compete with other producers. c. conditions that discourage new firms from entering the market. d. conditions that allow firms to determine how much they wish to produce, without influencing the market price.

D

Since a monopolist faces a downward sloping demand curve, a. ​the monopolist is able to sell all that it wants at whatever price the monopolist chooses. b. ​the monopolist must always make an economic profit. c. ​the monopolist sells only a fraction of the total sales of the good in the market. d. ​it is necessary for the monopolist to lower the price to sell additional units of the good.

D

The marginal revenue curve for a monopoly firm starts at the same point on the vertical axis as the (i) average revenue curve. (ii) marginal cost curve. (iii) demand curve. a. (iii) only b. (i) and (ii) only c. (i) only d. (i) and (iii) only

D

Which of the following are necessary characteristics of a monopoly? (i) The firm is the sole seller of its product. (ii) The firm's product does not have close substitutes. (iii) The firm generates a large economic profit. (iv) The firm is located in a small geographic market. a. (i) and (iii) only b. (i), (ii), (iii), and (iv) c. (i), (ii), and (iii) only d. (i) and (ii) only

D

Which of the following is a characteristic of a competitive market? a. Firms sell differentiated products. b. There are many barriers to entry. c. There are many buyers but few sellers. d. Buyers and sellers are price takers.

D

Which of the following is not a reason for the existence of a monopoly? a. trademarks b. economies of scale c. patents d. marginal-cost pricing

D

Which of the following statements best expresses a firm's profit-maximizing decision rule? a. If marginal revenue is greater than marginal cost, the firm should increase its output. b. If marginal revenue is less than marginal cost, the firm should decrease its output. c. If marginal revenue equals marginal cost, the firm should continue producing its current level of output. d. All of the above are correct.

D

Which of the following statements is correct? a. The demand curve facing a competitive firm is downward sloping, as is the demand curve facing a monopolist. b. The demand curve facing a competitive firm is horizontal, as is the demand curve facing a monopolist. c. The demand curve facing a competitive firm is downward sloping, whereas the demand curve facing a monopolist is horizontal. d. The demand curve facing a competitive firm is horizontal, whereas the demand curve facing a monopolist is downward sloping.

D

​A monopolistically competitive firm is currently charging a price of $20 and producing 3,000 units/month. It faces monthly fixed costs of $1,000 and has an average variable cost of $22/unit. We would expect: a. ​The firm to adjust its production to minimum efficient scale b. ​The firm to earn an economic profit in the long run c. ​The firm to raise its price to cover its variable costs d. ​The firm to shut down in the short run

D

legal monopoly

a market in which competition and entry are restricted by the granting of a public franchise, government license, patent, or copyright

perfect competition

a market structure in which a large number of firms all produce the same product

natural monopoly

a market that runs most efficiently when one large firm supplies all of the output

The monopoly maximizes profit by setting

marginal revenue equal to marginal cost