Econ202 Modules 33-35

Suppose a monopolistically competitive industry is in the long-run equilibrium. Rising energy prices raise average total costs in the industry. Which of the following will occur? a. firms will exit the industry b. firms will begin to make positive economic profits c. the firm's demand curve will lie above its average total cost curve d. eventually the individual firm's demand curve will shift to the right

a. firms will exit the industry

Advertising is LEAST likely to occur in: a. a monopoly b. perfect competition c. an oligopoly d. monopolistic competition

b. perfect competition

If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run: a. the level of profits will be unchanged b. they will make zero economic profits c. firms will be unable to enter the industry because of the existence of barriers to entry d. a limited number of firms will enter the industry, and the profits will be reduced but will remain positive

b. they will make zero economic profits

Antitrust policy is the government attempt to: a. promote tacit collusion within an industry b. allow companies in an industry to merge into monopolies c. prevent oligopolistic industries from becoming monopolies d. assist companies in finding ways to conduct price fixing

c. prevent oligopolistic industries from becoming monopolies

The monopolistically competitive firm maximizes profit by producing where: a. MR = MC b. P = MC c. MR = AR d. ATC = MR

a. MR = MC

Which of the following is NOT a mechanism by which oligopolists can maintain tacit collusion and avoid price wars? a. complex pricing schemes b. price leadership c. nonprice competition d. product differentiation

a. complex pricing schemes

Which off the following is true of monopolistic competition but is NOT true of perfect competition? a. each firm distinguishes its product from that of its competitors b. the firm engages in marginal cost pricing c. the firm produces at the point where average total cost is minimized d. there are significant barriers to the entry of new firms in the industry

a. each firm distinguishes its product from that of its competitors

Monopolistic competitors engage in product differentiation in order to: a. enhance their market power b. make it easier to collude with other firms c. reduce costs d. create excess capacity

a. enhance their market power

If firms in a monopolistically competitive industry have demand curves that lie above the average total cost curve, then in the long run: a. firms will enter the industry b. firms will exit the industry c. firms are making zero economic profits d. the industry is currently in the long-run equilibrium

a. firms will enter the industry

The goal of a monopolistically competitive firm is to: a. maximize profit b. minimize profit c. maximize the quantity sold d. create product diversity

a. maximize profit

Across industries in the real world, the market structure that is most prevalent is: a. oligopoly b. monopoly c. perfect competition d. command economy

a. oligopoly

The three major forms of product differentiation include all of the following EXCEPT by: a. price b. style or type c. location d. quality

a. price

If the largest pizza restaurant in town adjusts its menu at the beginning of each year and its competitors take notice and follow suit, this would be a good example of: a. price leadership b. product differentiation c. noncooperation d. illegal activity

a. price leadership

Which of the following is a monopolistically competitive industry with differentiation by style or type? a. running shoes b. electric power c. cotton d. cucumbers

a. running shoes

Monopolistically competitive firms spend money on celebrity endorsements in order to: a. send a signal that they are successful b. show that successful people are willing to offer free endorsements of their products c. convey objective information about their products d. illustrate the idea that advertising and brand name create efficiencies in the market

a. send a signal that they are successful

Which of the following is true of the long run in perfect competition but NOT true of the long run in monopolistic competition? a. the firm produces where average total cost is minimized b. economic profit is zero c. marginal revenue equals marginal cost d. the firm will fail to produce enough to minimize average total cost

a. the firm produces where average total cost is minimized

A good is excludable if: a. the supplier of that good can prevent people who do not pay for it from consuming it b. it is a common resource and nonrival in consumption c. the same unit of the good cannot be consumed by more than one person at the same time d. there is no free-rider problem and the good is nonrival in consumption

a. the supplier of that good can prevent people who do not pay for it from consuming it

Product differentiation is most likely to occur when firms: a. engage in price wars b. have tacit agreements not to engage in price wars c. behave in a Bertrand model environment d. do not advertise

b. have tacit agreements not to engage in price wars

A monopolistic competitor may choose to advertise in order to: a. reduce excess capacity b. increase demand for its product c. collude more effectively with other firms d. produce on the upward-sloping portion of its average total cost curve

b. increase demand for its product

In the short run, if a monopolistically competitive firm has an average cost curve that lies above the demand curve, then the firm is: a. breaking even b. making a loss c. making positive economic profits d. making zero economic profits

b. making a loss

One of the reasons community colleges receive government subsidies is that it is believed that education creates _________, and without subsidies the quantity produced would be _______ the socially optimal quantity. a. positive externalities; greater than b. positive externalities; less than c. negative externalities; greater than d. no externalities; less than

b. positive externalities; less than

In long-run equilibrium, a monopolistically competitive firm is produce at a point on its average total cost curve where: a. price equals marginal cost b. price equals average total cost c. price equals marginal revenue d. marginal revenue equals average total cost

b. price equals average total cost

The model in which one firm sets a price and others in the industry also charge the same price is known as: a. a Nash equilibrium b. price leadership c. a tit-for-tat strategy d. prisoners dilemma

b. price leadership

__________ is a situation in which one firm set the price and other firms in the industry match that price. a. a Nash equilibrium b. price leadership c. courot competition d. collusion

b. price leadership

Examine the figure Model of a Competitive Market. If there are external costs: a. resources will be underallocated to the production of the good b. resources will be overallocated to the production of the good c. resources will be allocated efficiently to the production of the good d. the price at P will be higher than if there were no external costs

b. resources will be overallocated to the production of the good

As new firms enter into a monopolistically competitive industry, the firm demand curve will: a. shift to the right b. shift to the left c. become steeper d. become flatter

b. shift to the left

Which of the following make it easier for firms to tacitly collude? a. large numbers of firms b. similarities of interest c. buyers with high bargaining power d. differences in interests

b. similarities in interests

The benefit to the consumer of brand names in markets that exhibit monopolistic competition is: a. lower total cost b. the assurance that the firm will provide a quality product in order to preserve repeated transactions c. encouraging the entry of new competitors d. allowing the firm to engage in price discrimination

b. the assurance that the firm will provide a quality product in order to preserve repeated transactions

All of the following would be good examples of a firm engaging in product differentiation EXCEPT: a. a cereal maker that advertises that its product contains more essential vitamins than its competitors b. the manufacturer of an over-the-counter pain reliever that reduces the pain reliever's price significantly lower than its rivals c. an auto manufacturer that markets its vehicles with the claim that it produces the safest cars in the world by employing the latest technology d. an airline that offers complimentary meals and movies on all of its flights

b. the manufacturer of an over-the-counter pain reliever that reduces the pain reliever's price significantly lower than its rivals

A monopolistically competitive firm faces: a. a perfectly elastic demand curve b. the market demand curve for the good c. a highly elastic demand curve d. a perfect inelastic demand curve

c. a highly elastic demand curve

Which example describes an environmental policy based on tradable emission permits? a. a charge to companies of $1 for ever 100 units of pollutants emitted b. paying companies $1 for each 10% reduction in emissions c. allowing companies to buy and sell the right to a certain level of emissions d. ignoring pollution and letting private markets operate without government interference

c. allowing companies to buy and sell the right to a certain level of emissions

Pigouvian taxes are designed to reduce: a. the marginal costs of production b. the marginal benefit of consumption c. external costs d. external benefits

c. external costs

Which of the following is NOT a characteristic of a brand name? a. a brand name provides customers assurance of consistency of quality b. a brand name differentiates the branded product in the minds of consumers c. firms strongly encourage other products to use its brand name d. a brand name conveys information about a product

c. firms strongly encourage other products to use its brand name

All of the following statements regarding the role of advertising are correct EXCEPT that: a. it is effective only in industries whose firms have some market power b. the purpose is to persuade consumers to purchase more of a firm's product c. firms that advertise typically cannot charge prices above marginal cost d. a perfectly competitive firm has no incentive to advertise

c. firms that advertise typically cannot charge prices above marginal cost

When firms engage in tacit collusion, they: a. meet periodically to establish production quotas b. meet periodically to establish a monopoly price c. limit production in a way that enhances industry profits d. compete a price on undercutting each other

c. limit production in a way that enhances industry profits

Antitrust policy is designed to: a. protect the employees of monopoly firms b. protect the stockholders of monopoly firms c. prevent firms from excersiing monopoly power d. prevents firms from engaging in price discrimination

c. prevent firms from exercising monopoly power

Maria Sharapova, a woman's tennis champion, stars in Canon Sure Shot commercials with her pomeraninan dog. This is an example of advertising that: a. is directly informative about a product b. persuades people to buy the product because it is being sold by an expert c. provides an indirect signal of a product's quality d. helps a consumer learn about the product's critical features

c. provides an indirect signal of a product's quality

Which of the following is true for a monopolistically competitive firm in long-run equilibrium, but not a perfectly competitive firm? a. P = ATC at the equilibrium level of output b. MC = MR at the equilibrium level of output c. the firm has excess capacity at the equilibrium level of output d. the firm is mkaing zero economic profits at the equilibrium level of output

c. the firm has excess capacity at the equilibrium level of output

Which of the following is true of monopoly but is NOT true of monopolistic competition? a. the firm faces a downward-sloping demand curve b. the firm faces a downward-sloping revenue curve c. the firm will earn positive economic profits in the long run d. the firm will produce at a point where price equals marginal cost

c. the firm will earn a positive economic profits in the long run

All of the following are true statements concerning antitrust policies EXCEPT: a. they involve efforts by the government to prevent oligopolistic industries from becoming or behaving like monopolies b. the intent is to prevent the creation of new monopolies and to grandfather existing monopolies as long as they do not become too powerful c. the justice department review proposed mergers between companies in the same industry to make that competition is not reduced d. initially, early antitrust legislation, such as the Sherman Antitrust Act of 1890, went largely unenforced

c. the justice department review proposed mergers between companies in the same industry to make that competition is not reduced

Assume the price of a tradable emissions permit for a ton of sulfur dioxide is $150. Which statement is FALSE? a. a firm that buys permits has an incentive to limit pollution up to the point at which the marginal benefit of emissions is equal to $150 b. a firm that has more permits than it plans to use has an incentive to limit pollution up to the point at which the marginal benefit of emissions is equal to $150 c. the opportunity cost of emitting a ton of sulfur dioxide is $75 for all firms d. the opportunity cost of emitting a ton of sulfur dioxide is $150 for all firms

c. the opportunity cost of emitting a ton of sulfur dioxide is $75 for all firms

A good is rival in consumption if: a. the supplier of that good can prevent people who do not pay for it from consuming it b. the supplier of that good cannot prevent people who do not pay for it from consuming it c. the same unit of the good cannot be consumed by more than one person at a time d. there is no free-rider problem

c. the same unit of the good cannot be consumed by more than one person at the same time

Assume the federal government determines the total level of pollutants that can be discharged by city industries. A city is able to buy and sell the rights to this total discharge level with other cities. This is an example of: a. emissions taxes b. Pigouvian taxes c. tradable emissions permits d. environmental standards

c. tradable emissions permits

A trust is: a. a government agency charged with monitoring oligopolistic industries and enforcing antitrust laws b. a group of firms charged with self-monitoring and enforcing competitive behavior in an oligopolistic industry c. when shareholders of companies in an oligopolistic industry give over decision making a board of trustees d. a group of firms tacitly colluding on price and output in an oligopolistic industry

c. when shareholders of companies in an oligopolistic industry give over decision making to a board of trustees

For any given firm in a monopolistically competitve market, the long-run economic profits tends to be __________, and firms operate to the ___________ of the minimum point on the average total cost curve. a. positive; left b. negative; right c. zero; left

c. zero; left

Which of the following is NOT consistent with long-run equilibrium in a monopolistically competitive industry? A level of production where: a. each firm earns zero economic profit b. no firm enters of exits the industry c. the firm demand curve is tangent to the average total cost d. P equals minimum of the average total cost curve (ATC)

d. P equals minimum of the average total cost curve (ATC)

The value of a brand name employed by a particular firm provides all of the following benefits EXCEPT: a. reassuring consumers that the product, such as a hamburger from McDonald's will have the same consistent taste regardless of the store's location b. encouraging a national firm to provide consistent quality to ensure repeat business c. often being the most valuable asset a firm possesses d. a consumer's preference for a brand name product is always rational

d. a consumer's preference for a brand name product is always rational

Your community requires the sewage treatment plant to process raw sewage so that it is safe to return the water to the environment. This is an example of: a. an emissions tax b. the Coase theorem c. a tradable emissions permit d. an environmental standard

d. an environmental standard

The 1890 Sherman Antitrust ct makes it illegal for firms to: a. raise prices in an attempt to increase profits b. engage in tacit collusion c. engage in price discrimination d. create monopoly power

d. create monopoly power

Laws that require, for example, vehicles to have catalytic converters or that restrict or prohibit leaf burning are both examples of: a. Pigouvian taxes b. internalization of externalities c. transaction costs d. environmental standards

d. environmental standards

Since a monopolistic competitor produces a product with many close substitutes, it: a. has no market power b. faces a highly inelastic demand curve c. has unlimited market power d. has some degree of market power

d. has some degree of market power

All of the following are true statements regarding price wars EXCEPT: a. they occur when tacit collusion breaks down b. aggressive price competition causes prices to collapse c. sellers try to put each other out of business d. it is a form of cooperative behavior

d. it is a form of cooperative behavior

There are external benefits associated with the production of batteries. Without government regulation, the market will: a. produce too many batteries b. price batteries at less than the marginal social cost c. price batteries at less than the marginal social benefit d. price batteries at greater than the marginal social cost

d. price batteries at greater than the marginal social cost

A sporting goods store with many local competitors would practice product differentiation by all of the following EXCEPT: a. choosing the street corner in town that has the most traffic and is adjacent to a popular shopping mall b. stocking the most advanced high-tech shoes and training apparel c. specializing in products for running enthusiasts d. scheduling a series of sales promotions that change on a monthly basis

d. scheduling a series of sales promotions that change on a monthly basis

What is the effect in the market as more firms enter a monopolistically competitive market? a. the market supply curve shifts to the right b. the market supply curve shifts to the left c. the demand curve faced by each firm shifts out and to the right d. the demand curve faced by each firm shifts in and to the left

d. the demand curve faced by each firm shifts in and to the left

Which of the following is true of perfect competition but is NOT true of monopolistic competition? a. the firm faces a downward-sloping demand curve b .the firm faces a downward-sloping marginal revenue curve c. the firm will earn zero economic profit in the long run d. the firm will produce at a point where price equals marginal cost

d. the firm will produce at a point where price equals marginal cost

If the star baseball player on the most popular professional team appears in a television commercial for a local car dealership, this advertisement could convey all of the following EXCEPT that: a. the dealership is successful b. the dealership stands behind its vehicles c. the dealership is willing to spend a considerable among of money on advertising and must be profitable d. the star baseball player is viewed as an expert in the car industry

d. the star baseball player is viewed as an expert in the car industry

What accounts for the fact that profit is zero in the long-run equilibrium in monopolistic competition? a. firms have excess to capacity b. firms spend too much on product development c. firms are too small relative to the market d. there are no barriers to the entry of new firms

d. there are no barriers to the entry of new firms