ECON exam 4

Firms in oligopoly can achieve an economic profit

if they cooperate

If new firms enter a perfectly competitive industry, the market supply

increases

If a firm shuts down, it

incurs an economic loss equal to its total fixed cost

If a perfectly competitive firm's average total cost is less than the price, then the firm

makes an economic profit

One characteristic of monopolistic competition is that it has

many firms producing a slightly differentiated product

The perfectly competitive firm's supply curve is its

marginal cost curve above the average variable cost curve

For a perfectly competitive firm, profit maximization occurs when output is such that

marginal revenue (MR)= marginal cost (MC)

Each firm in a perfectly competitive industry

produces a good that is identical to that of the other firms

A perfectly competitive firm

sells a product that has perfect substitutes

In monopolistic competition, the entry of new firms

shifts existing firms' demand curves leftward

Product differentiation involves making a product that is

slightly different from the products of competing firms

When new firms enter the perfectly competitive Miami bagel market, the market

supply curve shifts rightward

Which of the following is the best example of a natural monopoly?

the cable television company in your hometown

If firms in an oligopolistic industry consistently cut their price to sell more output, what price and output will result?

the competitive price and output

Game theory reveals that

the equilibrium might not be the best solution for the parties involved

Economists use game theory to analyze strategic behavior, which takes into account

the expected behavior of others and the recognition of mutual interdependence

A perfectly competitive market arises when

the market demand is very large relative to the output of one seller

Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. What price will Kevin charge per session?

$60

The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot Pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, the price per pillow is

$70

The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot pillows stuffed with parrot feathers. When Paul maximizes his profit, the price is ___ per pillow and the marginal cost is ___.

$70; $40

The figure above shows a natural monopoly that the government must regulate. If the government uses ___, the firm produces ___ units per week.

an average cost pricing rule; 30

If the four-firm concentration ratio for the market for diapers is 73 percent, then this industry is best-characterized as

an oligopoly

Natural barriers to entry arise when, over the relevant range of output, there

are economies of scale

One requirement for an industry to be perfectly competitive is that in the industry there

are many firms for whom the efficient scale of production is small

The figure above shows a natural monopoly that the government must regulate. Which of the following pairs most likely results in similar outcomes?

average cost pricing and rate of return regulation

A perfectly competitive firm will shut down when the price is just below the minimum point on the

average variable cost curve

In the short run, a perfectly competitive firm

can possibly make an economic profit or possibly incur an economic loss

The table above shows the payoff matrix offered to two suspected criminals, Bonnie and Clyde. The payoffs are the years they will spend in prison. The suspected criminals are not allowed to communicate. Given the information in the payoff matrix, the Nash equilibrium is that Bonnie ___ and Clyde ___.

confesses; confesses

Arnie's Airlines is a monopoly airline that is able to price discriminate. If Arnie's decides to price discriminate, then

consumer surplus decreases

When a firm adopts new technology, generally its

cost curves shift downward

A permanent decrease in demand definitely

decreases the number of firms in the industry

Firms in monopolistic competition have demand curves that are

downward sloping

The market demand curve in a perfectly competitive market is ___ and the demand curve for a perfectly competitive firm's output is ___.

downward sloping; downward sloping

A market with only two firms is called a

duopoly

For a perfectly competitive firm, marginal revenue is

equal to the price

In the long run, a perfectly competitive firm will

make zero economic profit

The absence of barriers to entry in monopolistic competition means that in the long run firms

make zero economic profit

The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, the difference between marginal cost and price

$30

The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot Pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, he produces ___ pillows per hour.

3,000

Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand and cost curve for his firm, which competes in a monopolistically competitive market. Kevin will train how many clients per day?

4

Which of the following is true about monopolistic competition but false about perfect competition?

Firms compete on their product's price as well as its quality and marketing

Suppose there are 6 firms in an industry with the following market shares. If the two smallest firms want to merge, how will the Federal Trade Commission reply?

The firms will be challenged because the merger will raise the HHI by more than 250 points

A price-discriminating monopoly charges

a different price to different types of buyers for the same product, even though there are no differences in costs

For a perfectly competitive firm, the market price of a good is

a given which the firm cannot change. equal to the firm in order to maximize its profit.

A cartel is

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

Compared to a perfectly competitive market, a single-price monopoly sets

a higher price

Section 1 of the Sherman Antitrust Act declares what to be illegal?

every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nation

In an oligopoly, there are

few firms and barriers to entry

Advertising is a ___ cost that is incurred by ___.

fixed; monopolistically competitive firms

A perfectly competitive firm definitely makes an economic profit in the short run if price is

greater than average total cost

The marginal revenue curve for a perfectly competitive firm is

horizontal

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

its demand curve is horizontal

In States where the government runs liquor stores, the monopoly results from

legal restrictions

The demand curve facing a single-price monopoly

lies above the marginal revenue curve

The firm's over-riding objective is to

maximize economic profit

With perfect price discrimination, a monopoly can extract the ___ price each customer is willing to pay and thereby obtain the entire ___ surplus.

maximum; consumer

The above figure shows a perfectly competitive firm. If the market price is $5, the firm

might shut down but more information is needed about the AVC

The figure above shows Firm X. The ___ firm chargers a markup of ___.

monopolistically competitive; $10 per unit because price exceeds marginal cost

If perfectly competitive lawn care firms are making an economic profit, then

new firms will enter the industry

A market in which the Herfindahl-Hirschman Index exceeds 1,800 is considered to be

not competitive

A monopoly is a market with

one supplier

A market in which many firms sell identical products is

only perfectly competition

Because perfectly competitive firms are price takers, each firm faces a demand that is

perfectly elastic

A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the

price is at least equal to the minimum average variable cost

In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's short-run decision?

the profit-maximizing level of output

Normal profit is

the return to entrepreneurship

Price discrimination is possible, in part, because

the willingness to pay can vary among groups of buyers

Firms in monopolistic competition determine the profit-maximizing level of output by producing

where marginal revenue equals marginal cost

In long-run equilibrium, a firm in monopolistic competition makes

zero economic profit