Econ exam 3

24. In the short run, a firm in a monopolistically competitive market operates much like a

monopolist

21. The reason to regulate utilities instead of using antitrust laws to promote competition is that a utility is usually a

natural monopoly

47. Which of the following is an example of a monopolistically competitive industry?

restaurants in New York City

1. Because the goods offered for sale in a competitive market are largely the same

sellers will have little reason to charge less than the going market price

46. Price discrimination is the business practice of

selling the same good at different prices to different customers.

42. Suppose a firm in a perfectly competitive market produces and sells 8 units of output and has a marginal revenue of $8.00. What would be the firm's total revenue if it instead produced and sold 4 units of output?

32$

48. Which of the following statements is correct?

When oligopoly firms collude, they are behaving as a cartel.

45. In a perfectly competitive market, the process of entry and exit will end when

economic profits are zero.

11. Drug companies are allowed to be monopolists in the drugs they discover in order to

encourage research

34. the prisoners dilemma provides insights into the

difficulty of maintaining cooperation

19. If a monopolist is able to perfectly price discriminate

consumer surplus and deadweight losses are transformed into monopoly profits

8. The exit of existing firms from a perfectly competitive market will

decrease market supply and increase market price

43. Comparing marginal revenue to marginal cost

1. reveals the contribution of the last unit of production to total profit. 2. is helpful in making profit-maximizing production decisions.

50. A profit-maximizing perfectly competitive firm currently earning positive economic profits will...

Face competition from new entrants.

41. Which of the following is not a characteristic of a perfectly competitive market?

Free entry is limited.

4. Which of the following statements best expresses a firms profit-maximizing decision rule

If marginal revenue is greater than marginal cost, the firm should increase it output.

25. If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long run equilibrium?

a decrease in demand for each firm

2. which of the following firms is the closest to being a perfectly competitive firm

a hot dog vendor in New York

29. Firms that engage in extremely expensive advertising campaigns for a product are likely to be providing customers with

a signal of product quality

26. Excess capacity is

an example of the inefficiencies of monopolistically competitive markets

9. Profit maximizing firms in perfectly competitive industries with free entry and exit face a price equal to the lowest possible

average total cost of production

10. the fundamental source of monopoly power is

barriers to entry

33. In a typical cartel agreement, the cartel maximisez profit when it

behaves as a monopolist

18. a monopolist produces

less than the socially efficient quantity of output at a higher price than in a competitive market

13. In order to sell more of its product, a monopolists must

lower its price

35. Games that are played more than once generally

make collusive agreements easier to enforce

22. A monopolistic competitive industry is characterized by

many firms, differentiated products, and free entry

14. if a profit maximizing monopolist faces a downward sloping market demand curve, its

marginal revenue is less than the price of the product

44. When profit-maximizing firms in perfectly competitive markets are earning economic profits,

new firms will enter the market.

49. A profit-maximizing monopoly will... a. Always earn economic profits. b. Always earn economic losses. c. Face competition from new entrants

none of the above

20. Anti trust laws allow the government to

prevent mergers break up companies promote competition

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

the McDonald's brand name suggests consistent quality, while the quality of the product from the street vendors is unknown.

6. Which of the following statements best reflects the production decision of a profit maximizing firm in a perfectly competitive market when price falls below the minimum of average variable cost

the firm will immediately stop producing to minimize its losses

23. Each firm in a monopolistic competitive firm faces a downward sloping demand curve because

the firms product is different from those offered by other firms in the market

7. Which of these curves is the perfectly competitive firms short run supply curve?

the marginal cost curve above average variable cost

31. An oligopoly is a market in which

there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market.

32. Cartels are difficult to maintain because

there is always tension between cooperation and self interest in a cartel

12. additional firms often do not try to compete with a natural monopoly because

they know they cannot achieve the same low costs that the natural monopolists enjoys

36. the practice of requiring someone to buy two or more items together, rather than seperately, is called

tying

37. From society's standpoint, cooperation among oligopolists is

undesirable, because it leads to output levels that are too low and prices that are too high