Economic Final Exam Review

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should A) increase its output. B) reduce its output. C) keep output constant and enjoy the above normal profit. D) lower the price.

A) increase its output.

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss. A) loss of $6,000 B) profit of $6,000 C) profit of $30,000 D) There is insufficient information to answer the question.

A) loss of $6,000

In monopolistic competition there is/are A) many sellers who each face a downward-sloping demand curve. B) a few sellers who each face a downward-sloping demand curve. C) only one seller who faces a downward-sloping demand curve. D) many sellers who each face a perfectly elastic demand curve.

A) many sellers who each face a downward-sloping demand curve.

A four-firm concentration ratio measures A) the fraction of an industry's sales accounted for by the four largest firms. B) the production of any four firms in an industry. C) how the four largest firms became so concentrated. D) the fraction of employment of the four largest firms in an industry.

A) the fraction of an industry's sales accounted for by the four largest firms.

The demand curve for the monopoly's product is A) the market demand for the product. B) more elastic than the market demand for the product. C) more inelastic than the market demand for the product. D) undefined.

A) the market demand for the product.

In the long run, if price is less than average cost, A) there is an incentive for firms to exit the market. B) there is profit incentive for firms to enter the market. C) the market must be in long-run equilibrium. D) there is no incentive for the number of firms in the market to change.

A) there is an incentive for firms to exit the market.

Which of the following is the best example of a perfectly competitive industry? A) wheat production B) steel production C) electricity production D) airplane production

A) wheat production

Game theory: A. is the analysis of how people (or firms) behave in strategic situations. B. is best suited for analyzing purely competitive markets. C. reveals that mergers between rival firms are self-defeating. D. reveals that price-fixing among firms reduces profits.

A. is the analysis of how people (or firms) behave in strategic situations.

If the four-firm concentration ratio for industry X is 80: A. the four largest firms account for 80 percent of total sales. B. each of the four largest firms accounts for 20 percent of total sales. C. the four largest firms account for 20 percent of total sales. D. the industry is monopolistically competitive.

A. the four largest firms account for 80 percent of total sales

Which of the following characteristics is common to monopolistic competition and perfect competition? A) Firms produce identical products. B) Entry barriers into the industry are low. C) Each firm faces a downward -sloping demand curve. D) Firms take market prices as given.

B) Entry barriers into the industry are low.

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly? A) Yes, there are no substitutes to Peet's coffee. B) No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes. C) Yes, Peet's is the only supplier of Peet's coffee in a market where there are high barriers to entry. D) No, Peet's is not a monopoly because there are many branches of Peet's.

B) No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.

A monopolistically competitive firm maximizes profit where A) price = marginal revenue. B) price > marginal cost. C) marginal revenue > average revenue. D) total revenue > marginal cost.

B) price > marginal cost.

If the demand curve for a firm is downward-sloping, its marginal revenue curve A) will lie above the demand curve. B) will lie below the demand curve. C) is the same as the demand curve. D) is horizontal.

B) will lie below the demand curve.

A monopoly is a seller of a product A) with many substitutes. B) without a close substitute. C) with a perfectly inelastic demand. D) without a well-defined demand curve.

B) without a close substitute.

If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will approximate those of: A. a purely competitive producer. B. a pure monopoly. C. a monopolistically competitive producer. D. an industry with a low four-firm concentration ratio.

B. a pure monopoly.

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly? A) Each must lower its price to sell more output. B) Each sets a price for its product that will maximize its revenue. C) Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost. D) Each maximizes profits by producing a quantity for which price equals marginal cost.

C) Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

Is a monopolistically competitive firm allocatively efficient? A) No, because it does not produce at minimum average total cost. B) Yes, because it produces where marginal cost equals marginal revenue. C) No, because price is greater than marginal cost. D) Yes, because price equals average total cost.

C) No, because price is greater than marginal cost.

What is a prisoner's dilemma? A) a game that involves no dominant strategies B) a game in which prisoners are stumped because they can't communicate w/ each other C) a game in which players act in rational, self-interested ways that leave everyone worse off D) a game in which players collude to outfox authorities

C) a game in which players act in rational, self-interested ways that leave everyone worse off

If the painting firms in a city sign a contract outlining a pricing plan, they are involved in A) price competition. B) a legal form of business contract in the United States. C) collusion. D) price regulation.

C) collusion.

A monopoly differs from monopolistic competition in that A) a monopoly has market power while a firm in monopolistic competition does not have any market power. B) a monopoly can never make a loss but a firm in monopolistic competition can. C) in a monopoly there are significant entry barriers but there are low barriers to entry in a monopolistically competitive market structure. D) a monopoly faces a perfectly inelastic demand curve while a monopolistic competitor faces an elastic demand curve.

C) in a monopoly there are significant entry barriers but there are low barriers to entry in a monopolistically competitive market structure.

The price of a seller's product in perfect competition is determined by A) the individual seller. B) a few of the sellers. C) market demand and market supply. D) the individual demander.

C) market demand and market supply.

Refer to Table 11-1. If the market price of each camera case is $8 and the firm maximizes profit, what is the amount of the firm's profit or loss? A) $0 (it breaks even) B) loss of $1,000 C) profit of $440 D) loss of $440

C) profit of $440

A very large number of small sellers who sell identical products imply A) a multitude of vastly different selling prices. B) a downward sloping demand for each seller's product. C) the inability of one seller to influence price. D) chaos in the market.

C) the inability of one seller to influence price.

Refer to Table 13-2. Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy? A) to signal to each other not to charge below the current low price B) to signal to each other that they will not hesitate to initiate a price war C) to signal to each other that they intend to charge the high price D) to signal to each other to share the market equally

C) to signal to each other that they intend to charge the high price

The term oligopoly indicates: A. a one-firm industry. B. many producers of a differentiated product. C. a few firms producing either a differentiated or a homogeneous product. D. an industry whose four-firm concentration ratio is low.

C. a few firms producing either a differentiated or a homogeneous product.

Oligopoly is more difficult to analyze than other market models because: A. the number of firms is so large that market behavior cannot be accurately predicted. B. the marginal cost and marginal revenue curves of an oligopolist play no part in the determination of equilibrium price and quantity. C. of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models. D. unlike the firms of other market models, it cannot be assumed that oligopolists are profit maximizers.

C. of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.

Refer to Table 12-2. What is the marginal profit from producing and selling the 5th case? A) $275 B) $145 C) $35 D) $20

D) $20

Refer to Figure 12-6. What is the monopolistic competitor's profit maximizing price? A) P1 B) P2 C) P3 D) P4

D) P4

Which of the following is not a characteristic of a perfectly competitive market structure? A) There are a very large number of firms that are small compared to the market. B) All firms sell identical products. C) There are no restrictions to entry by new firms. D) There are restrictions on exit of firms.

D) There are restrictions on exit of firms.

Both buyers and sellers are price takers in a perfectly competitive market because A) the price is determined by government intervention and dictated to buyers and sellers. B) each buyer and seller knows it is illegal to conspire to affect price. C) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. D) each buyer and seller is too small relative to others to independently affect the market price.

D) each buyer and seller is too small relative to others to independently affect the market price.