Exam 2
D) $520
(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—Market A and Market B—through the process of price discrimination, how much profit is the monopolist making in Market B? A) $260 B) $780 C) $1,040 D) $520
D) $400
(Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the deadweight loss when this monopoly is unregulated. A) $6,400 B) $2,800 C) $850 D) $400
B) increase from $400 million to $475 million a day.
(Table: Market for Oil) Refer to the table. Suppose that these countries form a cartel and each country produces 8 MBD. If one of the cartel members cheats by secretly pushing its production back to 10 MBD rather than 8, total revenue for the cheating country would: A) increase from $360 million to $500 million a day. B) increase from $400 million to $475 million a day. C) decrease from $380 million to $360 million a day. D) remain unchanged at $400 million a day.
A) $210
(Table: Maximum Willingness to Pay for Word and Excel) Refer to the table. If Microsoft sells each product, Word and Excel, individually, what is the maximum profit Microsoft can make from selling the two products? (Assume the marginal costs of production are zero.) A) $210 B) $100 C) $220 D) $160
A) $260
(Table: Myrtle Beach Golf) Refer to the table. Assume that marginal costs of production are zero. If the resort bundles a one-night stay with a round of golf, how much profit will it make on David and John? A) $260 B) $380 C) $290 D) $275
A) $130.
(Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort bundles a one-night stay with a round of golf, it will charge: A) $130. B) $145. C) $110. D) $190.
B) $110; $80
(Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort sets prices for lodging and golf individually, it will charge ________ for one night's stay and ________ for one round of golf. A) $50; $110 B) $110; $80 C) $50; $35 D) $80; $57.50
B) $65, $65.
(Table: Oil Output) Refer to the table. The equilibrium outcome is: A) $78, $78. B) $65, $65. C) $89, $60. D) $60, $89.
B) always cheat
(Table: Payoff Matrix) Refer to the table. What is Player 2's strategy in this game? A) always cooperate B) always cheat C) cooperate when Player 1 cooperates; cheat when Player 1 cheats D) cheat when Player 1 cooperates; cooperate when Player 1 cheats
C) it could increase its profit by raising the price and selling fewer units.
(Table: Profit-Maximizing Monopolist) Refer to the table. When this monopolist is producing 9 units,: A) its marginal cost is below the marginal revenue level. B) its average revenue is greater than the price it receives for the product. C) it could increase its profit by raising the price and selling fewer units. D) it is producing at the socially optimal level.
A) cheat, for both Russia and Saudi Arabia.
(Table: Russia, Saudi Payoff Table) Refer to the table. The dominant strategies are to: A) cheat, for both Russia and Saudi Arabia. B) cooperate, for both Russia and Saudi Arabia. C) cheat for Russia and to cooperate for Saudi Arabia. D) cooperate for Russia and to cheat for Saudi Arabia.
B) 50
(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. Assume that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the new market price when Country A cheats on the agreement? A) 60 B) 50 C) 20 D) 40
D) 30,000
(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. Assume that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the resultant profit earned by Country A? A) 70,000 B) 6,000 C) 24,000 D) 30,000
A) 20,000
(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. Assume that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the resultant profit earned by each of the other two countries? A) 20,000 B) 30,000 C) 70,000 D) 24,000
B) 400
(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. If the countries create a cartel and agree to mimic monopoly-like behavior, what level of output would each firm produce? A) 1,200 B) 400 C) 200 D) 700
D) increase its own quantity to 600 units
(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. Suppose that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What would Country B's reaction be? A) lower its own quantity to 200 units B) increase its own quantity to 1,600 units C) increase the market price to $60 D) increase its own quantity to 600 units
C) $50
(Table: Willingness to Pay) Refer to the table. If the firm were to engage in bundling, its profits would increase by how much relative to setting individual prices for each good? A) $65 B) $225 C) $50 D) $210
D) $225.
(Table: Willingness to Pay) Refer to the table. If the firm were to engage in bundling, total surplus is: A) $65. B) $50. C) $160. D) $225.
D) MR cannot be calculated with the information given.
A monopolist increased output by 100 units but cut prices by $20 to sell this additional output at $1,000 per unit. What is TRUE about marginal revenue? A) MR totals $2,000. B) MR totals $100,000. C) MR totals -$2,000. D) MR cannot be calculated with the information given.
A) -$27
A monopolist sells in two different markets and charges the same price of $10 in both markets. In Market A, the demand curve is described by Qd = 50 - 2P. In Market B, the demand curve is described by Qd = 60 - P. If the monopolist lowers prices by $1 in the market with the more elastic demand and raises prices by $1 in the market with the more inelastic demand curve, by how much does its total revenue change? A) -$27 B) $459 C) $767 D) $308
B) maximum social surplus.
A perfectly price-discriminating monopoly causes: A) no social surplus. B) maximum social surplus. C) as much social surplus as in the case of a standard monopoly. D) as much social surplus as in the case of monopolistic competition.
C) don't bother to research are probably less sensitive to price.
A sales manager at a car dealership revealed that he considers how much the customer appears to know about the car when he's negotiating a price. Ignorant people tend to pay a premium on their car. Price discrimination explains this "ignorance premium" since people who: A) don't bother to research probably don't want a car that much. B) do research probably know that gas is very expensive and thus require a cheaper car. C) don't bother to research are probably less sensitive to price. D) do research are probably wealthier and thus less sensitive to price.
C) High-growth industries are more likely to have lots of entrants.
Another possible source of why cartels break down is the growth potential of the industry. Although industries with a lot of potential are more willing to invest in the time to form a collusive agreement, such growth potential also deters them from making this investment. Why would that be? A) High-growth industries are more likely to be monitored by the government. B) High-growth industries are less likely to face an inelastic demand curve. C) High-growth industries are more likely to have lots of entrants. D) High-growth industries are less likely to have the support of the government.
A) they know that with network goods, only a few firms will always dominate the market.
Antitrust authorities have a difficult time with network goods because: A) they know that with network goods, only a few firms will always dominate the market. B) profits tend to be higher in network markets, and thus firms are willing to fight harder. C) when monopolies exist, there is no competition to help lower prices. D) increased competition can easily lead to corruption in network markets.
B) all firms are competing "for the market." They are all trying to monopolize.
Antitrust laws forbidding "intent to monopolize" are problematic for network goods because: A) each firm just wants a small share of the market. B) all firms are competing "for the market." They are all trying to monopolize. C) consumers are made worse off by the contestability of markets for network goods. D) consumers are better off when markets are not contestable.
B) stays the same.
As more firms enter a monopolistically competitive market, the market demand curve: A) increases, shifts to the right. B) stays the same. C) decreases, shifts to the left. D) It will vary greatly depending on the industry.
D) more; keep
Cheaters in cartels make ________ profit when the other cartel members ________ their promise. A) more; break B) less; keep C) zero; break D) more; keep
A) No one wants to be the only one who bows when everyone else shakes hands.
Consider the "market" for interpersonal greetings. In many Western countries, the expected form of greeting is a handshake. In many Eastern countries, the expected form of greeting is a bow. Both greetings "work" in the sense that they function as a form of acknowledging the other person, but bows are superior to handshakes because handshakes spread germs and bows don't. Why is it that handshakes persist in the West if bows are better? A) No one wants to be the only one who bows when everyone else shakes hands. B) People in the West are unaware that handshakes spread germs. C) People in the West do not know how to bow, but do know how to shake hands. D) Handshakes are not a Nash equilibrium.
C) because it leads to lower prices for some products.
Consumers benefit from advertising: A) only when they gain information. B) if the advertising is not persuasive. C) because it leads to lower prices for some products. D) only when the advertising is being used as a signal.
D) I, II, III and IV
Consumers benefit from advertising: I. by gaining product information. II. by being persuaded to try a new product they might like. III. when the ad provides a signal of the product's quality. IV. if the ad leads to a lower price for the product. A) IV only B) II and III only C) I and II only D) I, II, III and IV
C) the incumbent firm does not control access to an important resource.
Contestable markets tend to arise when: A) fixed costs are high. B) the threat of new firms entering the market is low. C) the incumbent firm does not control access to an important resource. D) government regulations are in effect.
A) have more of an incentive to advertise.
Firms that expect their products to be successful: A) have more of an incentive to advertise. B) have less of an incentive to advertise. C) will only participate in price advertising. D) can better signal the quality of their product if they do NOT advertise.
A) have more of an incentive to advertise.
Firms that expect their products to be successful: A) have more of an incentive to advertise. B) have less of an incentive to advertise. C) will only participate in price advertising. D) can better signal the quality of their product if they do not advertise.
A) still price competitively since they face the threat of competition from new entrants.
Firms that operate in contestable markets: A) still price competitively since they face the threat of competition from new entrants. B) are pure monopolies that set price equal to consumers' highest willingness to pay. C) earn zero economic profits. D) face more competition when fixed costs are high.
A) still price competitively since they face the threat of competition from new entrants.
Firms that operate in contestable markets: A) still price competitively since they face the threat of competition from new entrants. B) are pure monopolies that set prices equal to consumers' highest willingness to pay. C) earn zero economic profits. D) face more competition when fixed costs are high.
A) no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly.
Generating electricity: A) no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly. B) requires a natural monopoly, along with the transmission and distribution of electricity. C) requires a natural monopoly but not the transmission and distribution of electricity. D) and the transmission and distribution of electricity are no longer natural monopolies.
B) $4,800
GlaxoSmithKline (GSK) maximizes profit by producing a quantity of 800 pills where marginal cost is $2 and average cost is $4. Consumers are willing to pay as much as $10 per pill when the quantity supplied is 800 pills. What is the maximum amount of profit that GSK can earn under these conditions? A) $3,200 B) $4,800 C) $6,400 D) $8,000
D) Demand for haircuts for women might be more inelastic than demand for haircuts for men, and haircuts are impossible to arbitrage.
Haircuts for men are often cheaper than haircuts for women, even when they are offered by the same stylist. Why might this be price discrimination? A) Everyone has the same demand for haircuts. B) The marginal cost of supplying a haircut may be lower for male than for female customers, and haircutting is a competitive industry with few fixed costs. C) Stylists are misogynists. D) Demand for haircuts for women might be more inelastic than demand for haircuts for men, and haircuts are impossible to arbitrage.
B) It can lead to innovation.
How can the pursuit of market power lead to the social good? A) It always leads to the lowest prices for the customers. B) It can lead to innovation. C) It leads to less product differentiation. D) It can lead to price discrimination.
B) They inform consumers through advertising.
How do monopolistically competitive firms inform consumers about their products? A) They rely on word-of-mouth. B) They inform consumers through advertising. C) There is no need to do such. D) Their products are well-known enough to stand on their own.
A) the deadweight loss will be eliminated as output expands to its efficient level.
If a monopolist begins to perfectly price discriminate,: A) the deadweight loss will be eliminated as output expands to its efficient level. B) consumer surplus will expand as prices fall. C) the deadweight loss will increase as there are now more lost gains from trade. D) consumer surplus is eliminated and the deadweight loss is maximized.
D) there will be zero deadweight loss to society.
If a monopolist is able to perfectly price discriminate, then: A) they will be able to charge every consumer a price equal to their marginal cost of production. B) arbitrage will not exist. C) prices will fall for those individuals with very inelastic demands. D) there will be zero deadweight loss to society.
D) sell less output.
If a monopolistically competitive firm raises prices, it will: A) sell no output. B) continue to sell the same amount of output. C) go out of business. D) sell less output.
B) demand curve facing each store will become more inelastic.
If all the major bookstores offer customer loyalty plans, it's possible that the: A) demand curve facing each store will become more elastic. B) demand curve facing each store will become more inelastic. C) supply curve facing each store will become more elastic. D) supply curve facing each store will become more inelastic.
B) collapse; lose
If anything, a cartel is likely to ________ and ________ power over time. A) strengthen; gain B) collapse; lose C) go bankrupt; then reorganize under bankruptcy law and gain D) operate in competitive markets; price discriminate to gain
A) increases.
If output increases under price discrimination, social surplus usually: A) increases. B) decreases C) remains the same.. D) changes in an indeterminate direction.
D) The students who go to the trouble to do this might have had low willingness-to-pay in the first place, so the arbitrage enables another layer of price discrimination.
If students in the United States go online and import the much cheaper Indian version of your textbook instead of buying the American edition, how might this arbitrage nevertheless help the publisher of your textbook? A) It makes the prices in India and the United States more equal. B) It saves money on the color ink for the graphs. C) The students who go to the trouble to do this might resell the books for the higher American price and make a profit. D) The students who go to the trouble to do this might have had low willingness-to-pay in the first place, so the arbitrage enables another layer of price discrimination.
A) Drug companies would have no incentive to create new and better drugs.
If the Bill and Melinda Gates Foundation were to buy out and destroy the patent for Combivir, which of the following would NOT be one of the effects? A) Drug companies would have no incentive to create new and better drugs. B) The price of Combivir would fall. C) The number of people treated with Combivir would rise. D) No one would have a monopoly on Combivir.
A) They could segment the markets and charge a lower price for Norvasc in Mexico than in the United States.
If the demand curve for Pfizer's Norvasc, a blood pressure medication, is more elastic in Mexico than it is in the United States, how could Pfizer use this information to maximize their profits? A) They could segment the markets and charge a lower price for Norvasc in Mexico than in the United States. B) They could segment the markets and charge a higher price for Norvasc in Mexico than in the United States. C) Since Mexico is a poorer country than the United States, in this situation it makes more sense for Pfizer to charge only one price in both countries. D) They could choose to sell Norvasc only in the United States.
A) MR=100-2Q.
If the monopolist's demand is given by P = 100 - Q, marginal revenue is given by: A) MR=100-2Q. B) MR=100-Q. C) MR = 100Q. D) MR=100Q-Q2.
A) Some women will secretly allow guys to take them to cheaper restaurants.
If women conspired together and demanded that any man wishing to take them on a date must take them to a nice restaurant, why would this be unsustainable? A) Some women will secretly allow guys to take them to cheaper restaurants. B) Some women will cheat on their boyfriends to go out to nice restaurants. C) Some men will cheat and take dates out to an even more expensive restaurant than is required. D) The government will arrest all women for conspiring against the public.
B) You have invested in several apps for the iPad that you would have to repurchase for the new platform.
If you buy a lot of apps for your current iPad, and in a few years another device comes out that is superior to it, why might you upgrade to a newer iPad instead of switching? A) You don't want to pay to have your Apple tattoo removed. B) You have invested in several apps for the iPad that you would have to repurchase for the new platform. C) None of the same applications is available on the new platform. D) You prefer the iPad's higher price.
D) Poor students could attend college (perhaps repeatedly) at a low cost and sell the information to wealthy students.
Imagine a technology that enabled people to sell part of the contents of their brains directly (assume that the seller does not get to keep a copy of the contents). Why might this make price discrimination for college education more difficult? A) It would be more difficult for financial aid offices to ascertain the willingness-to-pay of each student. B) Everyone would have the same elasticity of demand for college attendance. C) Everybody would panic since it would no longer be clear who knew or remembered what. D) Poor students could attend college (perhaps repeatedly) at a low cost and sell the information to wealthy students.
C) Microsoft was giving away Internet Explorer free with its operating system.
In 2000, why did the Department of Justice bring a lawsuit against Microsoft? A) Microsoft was restricting production of its operating system. B) Microsoft was not offering refunds on defective operating systems. C) Microsoft was giving away Internet Explorer free with its operating system. D) Microsoft was engaged in predatory pricing.
A) P>AC.
In a monopolistically competitive market, new firms will enter the market as long as: A) P>AC. B) P=AC. C) P<AC. D) P=MC.
B) zero profits on average, and consumers have strong preferences about where they eat.
In a stable, monopolistically competitive market for restaurants there are: A) zero profits on average, and consumers are indifferent about where they eat. B) zero profits on average, and consumers have strong preferences about where they eat. C) positive profits on average, and consumers are indifferent about where they eat. D) positive profits on average, and consumers have strong preferences about where they eat.
C) with the marginal revenue curve.
In the case of a perfectly price-discriminating monopolist, the demand curve lies: A) above the marginal revenue curve. B) below the marginal revenue curve. C) with the marginal revenue curve. D) tangent to the marginal revenue curve at the equilibrium point.
A) zero consumer surplus.
In the case of a perfectly price-discriminating monopoly, there is: A) zero consumer surplus. B) as much consumer surplus as in the case of perfect competition. C) as much consumer surplus as in the case of a standard monopoly. D) as much consumer surplus as in the case of monopolistic competition.
C) high fixed costs.
In the case of cable television, contestability is often hampered by: A) high variable costs. B) low variable costs. C) high fixed costs. D) low fixed costs.
D) high fixed costs of development.
In the case of software, contestability is often hampered by: A) low fixed costs of development. B) low variable costs of distribution. C) high variable costs of distribution. D) high fixed costs of development.
B) in the least interest of the players in the game.
In the prisoner's dilemma, the dominant strategy is: A) in the best interest of the players in the game. B) in the least interest of the players in the game. C) a moderate outcome for the players in the game. D) not a possible outcome in the game.
C) $7.50; $3
In these figures, the markup of price over marginal cost for the relatively inelastic demand is ______, and the markup of price over marginal cost for the relatively elastic demand is ______. A) $10; $2 B) $15; $7.50 C) $7.50; $3 D) $5; $1
D) oligopoly.
Internet dating services such as Match.com are in a market dominated by several large firms, making the market a(n:) A) competitive market. B) monopoly. C) monopolistically competitive market. D) oligopoly.
A) No, because there are high fixed costs of erecting power lines to every house.
Is electricity distribution a contestable market? Why or why not? A) No, because there are high fixed costs of erecting power lines to every house. B) No, because consumers feel loyal to their current power company. C) Yes, because there are no legal barriers to entry. D) Yes, because there are no fixed costs associated with distributing power.
B) Jonathan's and Ashley's values for Word and Excel are positively correlated.
Jonathan values Word at $100 and Excel at $90, and Ashley values Word at $80 and Excel at $60. Why does bundling fail to raise the seller's profits in this case? A) Jonathan's and Ashley's values for Word and Excel are negatively correlated. B) Jonathan's and Ashley's values for Word and Excel are positively correlated. C) Word and Excel don't work well with each other. D) Word and Excel are valued highly even when bought separately.
C) $30
Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. How much more does the seller make if it bundles than if it sells the products individually? A) $10 B) $20 C) $30 D) $40
C) price discrimination, offering lower prices to people that are more price sensitive and higher prices to everyone else.
Loyalty plans offered by booksellers can be viewed as a form of: A) a public good because everyone benefits from its use. B) contract manipulation, charging prices that mimic monopolies. C) price discrimination, offering lower prices to people that are more price sensitive and higher prices to everyone else. D) a price ceiling, creating an artificial shortage of top-selling books.
A) increase prices.
Loyalty programs, such as frequent flyer plans, tend to: A) increase prices. B) decrease prices. C) decrease monopoly power of the firm. D) make demand more elastic.
C) its product compatibility with a lot of other products.
Microsoft's market power stems from: A) its control over a scarce resource. B) economies of scale. C) its product compatibility with a lot of other products. D) being a government-created monopoly.
A) many firms, downward-sloping demand curves, and zero economic profit in the long run.
Monopolistic competition in a market is characterized by: A) many firms, downward-sloping demand curves, and zero economic profit in the long run. B) several dominant firms, perfectly elastic demand curves, and above-normal profits. C) many firms, perfectly elastic demand curves, and zero economic profit in the long run. D) several firms, inelastic demand curves, and long-run monopoly profit.
C) P > MC, causing an inefficiently lower level of output.
Monopolistically competitive firms are able to charge: A) P > MC, eliminating any lost gains from trade. B) P > MC, so output is produced at minimum per unit cost. C) P > MC, causing an inefficiently lower level of output. D) P = MC, maximizing social surplus.
B) a small deadweight loss.
Monopolistically competitive firms create: A) zero deadweight loss. B) a small deadweight loss. C) a large deadweight loss. D) negative deadweight loss.
C) positive profits cause competitors to enter the market, decreasing demand for each individual firm.
Monopolistically competitive firms earn zero profits on average because: A) they price above marginal cost. B) new firms cannot enter the market. C) positive profits cause competitors to enter the market, decreasing demand for each individual firm. D) they price at marginal cost.
C) greater than marginal cost.
Monopolistically competitive firms set price: A) less than marginal cost. B) equal to marginal cost. C) greater than marginal cost. D) sometimes greater than, sometimes less than, and sometimes equal to marginal cost.
C) there are multiple niches to fill; each product can dominate one niche.
Multiple products can thrive in a network industry when: A) the government decides to allow multiple products. B) consumers don't care about coordination at all. C) there are multiple niches to fill; each product can dominate one niche. D) competitors all go after the same niche.
D) All of the answers are correct.
Music is a network good because: A) most people want to listen to music that is popular. B) music that is popular is a more valuable good. C) music that is popular offers more benefits to the listener than does music that is obscure. D) All of the answers are correct.
C) lower than monopolies but higher than competitive markets.
Oligopolies tend to set prices: A) higher than monopolies. B) higher than cartels. C) lower than monopolies but higher than competitive markets. D) that equal marginal cost.
C) insensitive shoppers will stay away to avoid the crowds.
On Black Fridays, most retail outlets have major storewide sales. Yet, as one of the busiest shopping days in the United States, one would expect prices to increase, not decrease. Price discrimination explains the answer to this question because price: A) sensitive shoppers are more likely to notice tying and bundling tricks. B) sensitive shoppers are more likely to want to stay away from Black Friday. C) insensitive shoppers will stay away to avoid the crowds. D) insensitive shoppers tend to wait until the last minute for Christmas shopping.
D) products are non-differentiated and the different markets have good transportation networks between them.
One would expect more arbitrage to occur between two markets if: A) the products are differentiated in terms of their fundamental characteristics. B) the products have built-in tracking mechanisms that enable the discovery of the distributors. C) the demand curves in the two markets are essentially the same. D) products are non-differentiated and the different markets have good transportation networks between them.
A) good in industries with high fixed costs.
Price discrimination may be: A) good in industries with high fixed costs. B) good in industries with high marginal costs. C) less efficient if the number of consumers in the market is low. D) less efficient if it leads to higher prices.
B) b-d.
Refer to the figure. The monopolist's price markup is: A) a-b. B) b-d. C) d. D) a-d.
A) (50, 50) and (48, 60).
Refer to the table. The Nash equilibrium is (are): A) (50, 50) and (48, 60). B) (0, 45). C) (45, 45). D) (48, 60) and (45, 45).
B) The high price of oil charged by OPEC made it profitable to invest in such research.
Scientists are working on techniques to create bacteria that excrete oil as waste. How might OPEC have contributed to this research? A) OPEC donated money to fund this research. B) The high price of oil charged by OPEC made it profitable to invest in such research. C) Several members of the Saudi royal family personally worked on this research. D) OPEC is offering a prize to whoever can develop a substitute for oil.
D) The benefits of the network became less than the benefit of watching something a person truly enjoyed.
Seventy-nine percent of U.S. households watched the series finale of M*A*S*H, on February 28, 1983. Although this television event was an experience made slightly more valuable because it was commonly shared, it is unlikely to be repeated on the same scale because of the expansion of cable television and the Internet. If M*A*S*H was a network good, based on the information provided, which of the following has the most explanatory power for why TV shows lose so much networking power? A) Consumers were then willing to entertain competitive goods. B) There are now few legal barriers to entry. C) The incumbents lost their hard-to-replicate resource. D) The benefits of the network became less than the benefit of watching something a person truly enjoyed.
C) informative advertising; decrease prices
States allowing firms in certain industries to advertise prices, a form of ______, has been found to ______. A) signaling; decrease prices B) informative advertising; increase prices C) informative advertising; decrease prices D) signaling; increase prices
D) All of these statements are correct.
Suppose that the government decided to reduce pharmaceutical patent protection by requiring companies to sell their drugs at marginal cost. What are the likely consequences of such a policy? A) There would be an increase in consumer surplus. B) The deadweight loss in the market would decline. C) The future supply of new drugs would decrease. D) All of these statements are correct.
A) sell sports and music channels in one bundle to both types of viewers.
Suppose there are two types of cable TV viewers. The first type places a high value on sports channels (e.g., ESPN, Fox Sports, and The Golf Channel) and a low value on all other channels. The second type places a high value on music channels (VH1, MTV3, and CMT) and a low value on all other channels. In this case, we would expect cable operators to: A) sell sports and music channels in one bundle to both types of viewers. B) sell only sports channels to the first type of viewers and sell only music channels to the second type of viewers. C) use "à la carte" pricing. D) use fixed-cost pricing.
C) limit contestability.
Switching costs often: A) increase contestability. B) maintain contestability. C) limit contestability. D) have various effects on contestability.
A) limits cartel-like behavior in the United States.
The Sherman Antitrust Act of 1890: A) limits cartel-like behavior in the United States. B) serves to limit anticompetitive behavior by foreign firms that the U.S. trades with. C) has illegalized all cartels in the United States. D) All of the answers are correct.
A) more contestable than
The market for mineral water is ______ the market for piped water. A) more contestable than B) less contestable than C) equally contestable to D) not contestable without
B) II only
The market for network goods: I. is dominated by a single monopolist. II. is dominated by a series of monopolies. III. ensures long-term profits for those companies that win the standard war. A) I only B) II only C) I and III only D) II and III only
A) consists of government-controlled cartels that raise the price of milk and punish any seller who violates the cartel.
The milk industry in the United States: A) consists of government-controlled cartels that raise the price of milk and punish any seller who violates the cartel. B) is currently in violation of antitrust laws, according to the President's legal staff. C) shows how competition from new rivals can reduce the power of cartels. D) was exposed by the FBI for conspiring to raise prices.
A) long-run; $14
The monopolistically competitive firm in this diagram is in ______ equilibrium and charging a price of ______. A) long-run; $14 B) short-run; $8 C) short-run; $11 D) long-run; $8
D) demand; price discriminate
The more a firm knows about ________ the easier it is for the firm to ________. A) competitors; advertise B) costs; sell its goods C) supply; price discriminate D) demand; price discriminate
C) as part of the product
The movie The Invention of Lying takes place in a world where everyone can only tell the absolute truth. An advertisement for Coke admits there is nothing new about the product and that it's basically just brown sugar water. It ends with the tagline: "Coke. It's very famous." How is Coke using advertising in this fictional advertisement? A) as a signal B) as conveying new information C) as part of the product D) both as a signal and the conveyor of new information
A) Shutterfly is trying to increase switching costs for their consumers.
The online photo-sharing Web site Shutterfly offers unlimited free uploads. Which of the following best explains why they offer this service at no charge? A) Shutterfly is trying to increase switching costs for their consumers. B) Shutterfly is trying to decrease their average costs. C) Shutterfly is trying to increase competition. D) The marginal cost of uploading photos is near zero; setting price equal to marginal cost is simply an efficient pricing strategy.
A) more contestable.
The result of the Microsoft antitrust case was to make Microsoft software: A) more contestable. B) less contestable. C) equally contestable. D) uncontestable.
A) how an inferior product can become the "locked-in" standard simply because it was first to market.
The story of QWERTY is about: A) how an inferior product can become the "locked-in" standard simply because it was first to market. B) how network goods are noncontestable. C) the absence of a Nash equilibrium when there are large fixed costs to entry. D) the creation of monopoly power through the use of loyalty programs.
A) actual equilibrium outcomes in a coordination game.
The term "accidents of history" describes: A) actual equilibrium outcomes in a coordination game. B) good equilibrium outcomes in a coordination game. C) all equilibrium outcomes in a coordination game. D) no equilibrium outcomes in a coordination game.
A) the early 1970s.
There was a dramatic increase in the price of oil in: A) the early 1970s. B) the early 1980s. C) the early 1990s. D) the late 1990s.
D) higher price in markets with more inelastic demand.
To maximize profit the monopolist should set a: A) lower price in markets with less elastic demand. B) lower price in markets with more inelastic demand. C) higher price in markets with more elastic demand. D) higher price in markets with more inelastic demand.
B) until marginal cost is equal to marginal revenue.
To maximize profit, the monopolist increases output: A) until it is using full manufacturing capacity. B) until marginal cost is equal to marginal revenue. C) to the same amount it would produce if the firm was competitive, but maximizes price. D) as long as the marginal revenue curve is higher than the demand curve.
A) $24; $4
Two firms in an industry act as a cartel, with each firm agreeing to charge a price of $16 and sell two units of output. If one of them cheats and produces two more units of output, the cheating firm's total revenue increases by ______ and the other firm's total revenue decreases by ______. A) $24; $4 B) $28; $14 C) $84; $32 D) $12; $8
C) above production costs.
Typical evidence for the existence of market power would be market prices: A) below production costs. B) equal to production costs. C) above production costs. D) varying with market supply and demand conditions.
D) $50.
Under Michael Kremer's patent-buyout proposal, the government would buy the rights to the firm in this figure's patent for at least: A) $30. B) $40. C) $10. D) $50.
A) downward-sloping; zero
Under steady state monopolistic competition firms face ______ demand and earn ______ economic profits on average. A) downward-sloping; zero B) downward-sloping; positive C) perfectly-elastic; zero D) perfectly-elastic; positive
B) P=$14;Q=6
What is the profit-maximizing price and output level for the monopolist in this figure? A) P=$8;Q=6 B) P=$14;Q=6 C) P=$8;Q=12 D) P=$10;Q=10
A) P=MC.
When a regulated monopolist maximizes consumer surplus, it produces at an optimal Q where: A) P=MC. B) MR=MC. C) D=AC. D) AR=AC.
B) It is a natural monopoly.
When a single firm can supply the entire market at a lower cost than two or more firms, the firm can be said to have which of the following characteristics? A) It must be producing at the socially optimal level of output. B) It is a natural monopoly. C) The marginal cost curve rises at an increasing rate. D) It is one of two firms in the industry.
B) fails to earn monopoly profits.
When all members of a cartel cheat, the cartel: A) earns monopoly profits. B) fails to earn monopoly profits. C) cannot profit. D) may or may not earn monopoly profits.
A) the idea that the product is expected to be very popular for a long time.
When an advertisement serves as a signaling device, it provides potential customers with: A) the idea that the product is expected to be very popular for a long time. B) information on price. C) information on quality. D) information on availability.
B) new firms will begin to enter the market.
When cartels are successful at driving up prices,: A) production of substitute goods will decrease. B) new firms will begin to enter the market. C) competition among firms will decrease. D) cheating will be eliminated.
C) will be lower, and monopoly price will be higher, than that of a competitive firm.
When comparing a monopoly with a competitive industry, monopoly quantity: A) and monopoly price will be lower than that of a competitive firm. B) will be higher, and monopoly price will be lower, than that of a competitive firm. C) will be lower, and monopoly price will be higher, than that of a competitive firm. D) and monopoly price will be higher than that of a competitive firm.
D) will always raise their price until they get to an elastic portion of the demand curve.
When demand is inelastic, revenues increase and production costs decrease as the quantity produced declines, total profits will always increase with a higher price. Therefore, monopolists: A) can't exist. B) can't exist for industries in which demand is relatively inelastic. C) can't maximize profits if they face a relatively inelastic demand. D) will always raise their price until they get to an elastic portion of the demand curve.
B) a lower markup.
When demand is relatively elastic, monopolists will charge: A) a higher markup. B) a lower markup. C) the same markup as when demand is relatively inelastic. D) a price equal to marginal cost.
C) I and III only
Which BEST explains why monopolies or oligopolies tend to dominate the market for network goods? I. Their products are the most likely to be compatible with other products. II. They produce the "best" products in terms of quality and compatibility. III. The power of coordination is so strong that monopolists and oligopolists can dominate the market even when they charge prices higher than their competitors. A) I only B) I and II only C) I and III only D) I, II, and III
D) the only Chinese restaurant in town
Which firm's market is the most contestable? A) the only cable TV provider in town B) the only sewer-and-water company in town C) the only hospital in town D) the only Chinese restaurant in town
C) Popularity is less important than musicianship.
Which is FALSE? A) Music is a network good. B) Some musicians get lucky and become popular quickly. C) Popularity is less important than musicianship. D) A musician's current success is no guarantee of future success.
B) electricity providers
Which is NOT a good example of a contestable market? A) low-cost airlines B) electricity providers C) a local Mexican restaurant D) bottled-water manufacturers
C) You're not sure where your study group is supposed to meet, but the library is the most likely place so you go there.
Which is an example of a coordination game? A) choosing a dress for a wedding while making sure no one is wearing the same thing B) divvying up the parts of a group project so you don't have to do as much and everyone can work cohesively together C) You're not sure where your study group is supposed to meet, but the library is the most likely place so you go there. D) getting the roast beef at a restaurant—the same thing everyone else gets—because it is the best deal on the menu
B) a single firm that can supply the market at a lower cost than two or more firms
Which of the following correctly defines a monopoly that arises from economies of scale? A) a single firm operating in a market B) a single firm that can supply the market at a lower cost than two or more firms C) a single firm that controls the production of a natural resource D) a single firm that produces the efficient and socially optimal quantity in a market
B) farmers
Which of the following does NOT practice price discrimination on a regular basis? A) universities B) farmers C) movie theaters D) airline companies
D) It explains why there is so much recidivism.
Which of the following is NOT a feature of the prisoner's dilemma? A) It explains why cartels fail. B) It describes how producers can lock themselves into a suboptimal outcome by pursuing their own self-interest. C) It shows a dominant strategy for each of the players. D) It explains why there is so much recidivism.
B) To maximize profit the firm should set a higher price in markets with more elastic demand.
Which of the following is NOT a principle of price discrimination? A) It is more profitable to set different prices in markets with different demand curves than a single price that covers all markets. B) To maximize profit the firm should set a higher price in markets with more elastic demand. C) To maximize profit the firm should set a higher price in markets with more inelastic demand. D) Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price discrimination.
D) "Network effects" tend to limit the size of the firm.
Which of the following is NOT a result of the network effect? A) Facebook is more valuable to a person the more friends use it. B) eBay is more valuable to a buyer the more sellers there are. C) eBay is more valuable to a seller the more buyers there are. D) "Network effects" tend to limit the size of the firm.
C) Apple iPhones
Which of the following is NOT subsidized through advertising? A) Google searches B) cable TV C) Apple iPhones D) The Wall Street Journal
B) P>MR
Which of the following is always TRUE for monopolies? A) MR>D B) P>MR C) P>AC D) TR<TC
D) autos
Which of the following is an example of a good with economies of scale? A) fish oil pills sold in bulk B) laptops with Internet access C) dog grooming D) autos
C) razors and blades
Which of the following is an example of price discrimination through tying? A) combo meals at fast food restaurants B) Barbie and Ken dolls C) razors and blades D) lights and light bulbs
B) senior citizen discounts
Which of the following is an example of price discrimination? A) value meals at fast-food restaurants B) senior citizen discounts C) tax-exempt status for nonprofit organizations D) holiday sales at retail stores
D) All of the answers are correct.
Which of the following is the main principle behind price discrimination? A) If the demand curves are different, it is more profitable to set different prices in different markets than a single price that covers all markets. B) To maximize profit the firm should set a higher price in markets with more inelastic demand. C) Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price discrimination. D) All of the answers are correct.
B) II only
Which of the following is/are TRUE of monopolistic competition? I. Monopolistic competitive firms do not produce at the minimum of their average cost curves. II. Monopolistic competitive firms produce at the minimum of their average cost curves. III. Monopolistic competitive firms earn higher profits than monopolies. A) I only B) II only C) I and III only D) II and III only
C) II and III only
Which of the following is/are TRUE regarding monopolistic competition? I. few sellers II. free entry III. product differentiation A) III only B) I and III only C) II and III only D) I, II, and III
C) I and III only
Which of the following is/are TRUE? I. A monopolistic competitive firm sets price > MC. II. A monopolistic competitive firm sets price = MC. III. A monopolistic competitive firm operates at MC = MR. A) I only B) II only C) I and III only D) II and III only
D) I II and III
Which of the following is/are TRUE? I. Advertising embodies both information and persuasion. II. Perfectly competitive firms and monopolistically competitive firms both advertise. III. Monopolies and monopolistically competitive firms both advertise. A) I only B) I and II only C) I and III only D) I II and III
A) I and III only
Which of the following statement(s) is/are TRUE? I. Because monopolistically competitive firms sell differentiated products, their demand curves are downward sloping. II. Monopolistically competitive firms earn above-normal profits because of high entry barriers. III. As firms enter a monopolistically competitive industry, the demand curves of the existing firms shift down and to the left. A) I and III only B) I and II only C) II only D) III only
B) II and III only
Which of the following statements are TRUE? I. Monopolists can raise prices as high as they want and still earn economic profits. II. Even with no competitors, firms face a downward-sloping demand curve. III. Just like competitive firms, monopolists maximize profits where marginal revenue equals marginal cost. A) I and III only B) II and III only C) I and II only D) I, II, and III
C) Price-discriminating monopolists often produce more output than single-price monopolists and increase total surplus in the process.
Which of the following statements is TRUE about price discrimination? A) Price discrimination makes consumers worse off due to higher prices. B) Price discrimination leads to deadweight loss and therefore makes the market less efficient C) Price-discriminating monopolists often produce more output than single-price monopolists and increase total surplus in the process. D) Price discrimination is illegal in the United States.
B) Market power may result from government regulations or patent protection.
Which of the following statements is TRUE? A) Market power is the ability to raise price and sell more units of a good. B) Market power may result from government regulations or patent protection. C) A monopoly is a firm without market power. D) All of the answers are correct.
D) III and IV only
Which of the following statements is TRUE? I. A cartel is a single firm with competitive market power. II. A cartel is a group of firms that practice price discrimination in competitive markets. III. A cartel is a group of firms that attempt to reduce market output. IV. A cartel acts as if it were a monopolist in that market. A) I only B) II, III, and IV only C) II only D) III and IV only
B) I and III only I. People with common diseases live longer than people with rarer diseases. III. It is more profitable to make drugs for common diseases because the market is bigger than it is for rare diseases.
Which of the following statements is TRUE? I. People with common diseases live longer than people with rarer diseases. II. Developing drugs for common diseases is a lot less expensive than developing drugs for rare diseases. III. It is more profitable to make drugs for common diseases because the market is bigger than it is for rare diseases. A) I and II only B) I and III only C) II only D) III only
C) II and III only II. Perfect price discrimination maximizes gains from trade. III. Under perfect price discrimination, the monopolist produces until price equals marginal cost.
Which of the following statements is TRUE? I. Perfect price discrimination maximizes consumer surplus. II. Perfect price discrimination maximizes gains from trade. III. Under perfect price discrimination, the monopolist produces until price equals marginal cost. A) I only B) I and II only C) II and III only D) I, II, and III
B) II only
Which of the following statements is TRUE? I. The deadweight loss from a monopoly refers to the loss in consumer surplus that is captured by the monopolist as profit. II. According to theory, if the government sets a natural monopolist's price equal to marginal cost, the socially optimum quantity of output will result. III. Deregulation of cable television caused higher prices and fewer programming choices for customers. A) I only B) II only C) I and III only D) I, II, and III
C) The high prices charged by a cartel might lead to new firms entering the industry, reducing the cartel's market power.
Which of the following statements is TRUE? A) It is easier to establish a cartel for a manufactured good than for a natural resource. B) Cartels are more successful when there are many substitutes for the cartel's good. C) The high prices charged by a cartel might lead to new firms entering the industry, reducing the cartel's market power. D) OPEC's high oil prices encourage countries like Mexico, Great Britain, and the Netherlands to cut back on oil production.
A) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.
Which statement is TRUE? A) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit. B) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling fewer units at a higher price per unit. C) When a monopolist produces where MR < MC it always earns a positive economic profit. D) A monopolist is guaranteed monopoly profits by the government.
D) If we had perfect competition instead of monopolistic competition, we would not have all the variety and innovation that we have today.
Why might the benefits of monopolistic competition outweigh the inefficiencies? A) Monopolistic competition has higher deadweight loss than monopoly. B) In monopolistic competition, firms do not produce at their minimum average cost. C) In monopolistic competition, firms do not price at marginal cost. D) If we had perfect competition instead of monopolistic competition, we would not have all the variety and innovation that we have today.
A) insensitive to the price of pharmaceuticals.
With health insurance, medical treatments are often paid by someone other than the patient, which will make consumers with serious diseases relatively: A) insensitive to the price of pharmaceuticals. B) sensitive to the price of pharmaceuticals. C) insensitive to the premium of health insurance. D) sensitive to the premium of health insurance.
D) producing oil beyond quota.
Within OPEC, cheating is associated with: A) holding oil reserves without reaching quota. B) meeting quota. C) zero production. D) producing oil beyond quota.
B) Q2.
(Figure: Maximize Monopoly Profits) Refer to the figure. The monopolist will maximize its profit by producing at output equal to: A) Q1. B) Q2. C) Q3. D) Q4.
C) $48.75
(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—Market A and Market B—if the monopolist were to charge a uniform price of $10 in both markets, how much profit would the monopolist lose? A) $234.75 B) $146.25 C) $48.75 D) $97.50
C) $60, $60.
(Table: Ozzie's, Manny's Payoff Table) Refer to the table. The equilibrium outcome is: A) undefined in this game. B) $80, $80. C) $60, $60. D) ($20, $130) or ($130, $20).
C) higher than prices on similar goods sold by competitive firms.
A firm with monopoly power is able to set a markup price that is: A) lower than prices on similar goods sold by competitive firms. B) the same as the prices on similar goods sold by competitive firms. C) higher than prices on similar goods sold by competitive firms. D) the maximum price all market participants will pay for similar goods.
B) monopolistic competition
A market with many firms, a differentiated product, and little to no barriers to entry is a _____ market. A) perfect competition B) monopolistic competition C) oligopoly D) monopoly
B) inelastic; demand
A monopolist can raise its price further above marginal cost, the more ______ is the ______ for its product. A) elastic; demand B) inelastic; demand C) elastic; supply D) inelastic; supply
A) $90,000,000
Rex Pharma produces anti-acid medication that is sold in a monopoly market. Pharma sells 10,000,000 pills for $12.50 per pill. If the pills were sold for the marginal cost of production of $0.50, Rex Pharma would be able to sell 25,000,000 pills. What is the deadweight loss of this monopoly market? A) $90,000,000 B) $120,000,000 C) $5,000,000 D) $12,500,000
C) decrease from 6 to 3.
(Figure: Demand 1) A cartel facing the market in this diagram would try to cause industry output to: A) increase from 5 to 10. B) increase from 3 to 6. C) decrease from 6 to 3. D) decrease from 5 to 2.
C) decrease to the point that P = AC.
(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistic competitive market. In the long run you would expect prices in this market to: A) stay the same. B) increase as unprofitable firms leave the industry. C) decrease to the point that P = AC. D) decrease to the point that P = MC.
C) demand to decrease and price to fall to the point that P = AC.
(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistic competitive market. In this market, in the long run you would expect: A) both demand and price to stay the same. B) both demand and price to increase as unprofitable firms leave the industry. C) demand to decrease and price to fall to the point that P = AC. D) demand to shift left and decrease price to the point that P = MC.
D) more firms to enter the market.
(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistically competitive market. In the long run you would expect: A) prices to increase. B) demand to become more inelastic. C) less quality and innovation. D) more firms to enter the market.
B) $420.
(Figure: Monopoly Profits) Refer to the figure. The monopolist earns a profit of: A) $630. B) $420. C) $540. D) $480.
A) $125,000
(Figure: Paint Market 2) What is the deadweight loss (if any) from the monopoly in this diagram relative to its optimum quantity? A) $125,000 B) $250,000 C) $300,000 D) No deadweight loss
D) $8; $0
(Figure: Price-Discriminating Monopolist 2) Consumer surplus with a single-price monopoly is ______, and consumer surplus with a perfect price discrimination is ______. A) $12; $4 B) $6; $0 C) $14; $10 D) $8; $0
C) $10 < PU < $16
(Figure: Price-Discriminating Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—Market A and Market B—if the monopolist were to charge a uniform price PU between the two markets, in which range would the price fall? A) $6 < PU < $14 B) $6 < PU < $10 C) $10 < PU < $16 D) $10 < PU < $14
B) $2,800
(Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the change in consumer surplus from an unregulated monopoly to a regulated monopoly. A) $6,400 B) $2,800 C) $400 D) $3,600
D) Manny's dominant strategy is low price, and Ozzie's dominant strategy is low price.
(Table: Ozzie's, Manny's Payoff Table) Refer to the table. Which of the following statements is TRUE? A) Manny and Ozzie do not have dominant strategies. B) Manny's dominant strategy is low price, and Ozzie's dominant strategy is high price. C) Manny's dominant strategy is high price, and Ozzie's dominant strategy is high price. D) Manny's dominant strategy is low price, and Ozzie's dominant strategy is low price.
B) always cheat
(Table: Payoff Matrix) Refer to the table. What is Player 1's strategy in this game? A) always cooperate B) always cheat C) cooperate when Player 2 cooperates; cheat when Player 2 cheats D) cheat when Player 2 cooperates; cooperate when Player 2 cheats
A) cheating
A 2006 paper by Margeret Levenstein and Valerie Suslow ("What Determines Cartel Success?") found that although cheating is a common cause of why cartels broke down, the following causes are even more common: entering firms, the nature of the demand curve, growth of the industry, and difficulty of bargaining between conspirators. What other cause is also associated with bargaining difficulties? A) cheating B) exiting firms C) the nature of the industry D) the nature of the supply curve
A) means that no players have an incentive to change their strategy.
A Nash equilibrium: A) means that no players have an incentive to change their strategy. B) means that some players could be made better off by changing their strategy. C) is suboptimal compared to Raj's equilibrium. D) None of the answers is correct.
D) reduce supply, increase prices, and increase profits.
A cartel is a group of suppliers who act together in order to: A) increase demand, raise prices, and increase profits. B) increase supply, reduce prices, and increase profits. C) increase demand, reduce prices, and increase profits. D) reduce supply, increase prices, and increase profits.
B) of product differentiation, some people will prefer their product.
A monopolistic competitive firm is able to charge P > MC because: A) they clearly have a superior product than their competitors. B) of product differentiation, some people will prefer their product. C) of high barriers to entry into the industry. D) monopolistic competitive firms must not set prices above P = MC.
B) MR=MC.
A monopolistically competitive firm operates where: A) MR<MC. B) MR=MC. C) MR>MC. D) MR+MC=0.
B) when the demand is less price-elastic.
A monopoly is able to increase the markup of price over marginal cost: A) when the demand is more price-elastic. B) when the demand is less price-elastic. C) when there is more marginal revenue per unit sold. D) at will regardless of price-elasticity.
D) persuasive advertising that may actually increase consumer well-being.
Advertising designed to link fond lifetime memories with the use of a product is a form of: A) informative advertising that is designed to reduce market power. B) informative advertising that is designed to increase market power. C) differentiated advertising that tries to reduce consumer surplus. D) persuasive advertising that may actually increase consumer well-being.
C) infers that the seller expects the product to make a big splash.
Advertising: A) is about price and quality only. B) is informative only. C) infers that the seller expects the product to make a big splash. D) is only when the seller fears the product will not make a big splash.
D) low so the firm will think that they need to pay you more to prevent you from leaving.
After you have been in a job for a while, you should portray your switching costs as: A) high because the firm will think that they do not need to pay you much. B) high because then they can ask you to manage the most unpleasant responsibilities. C) low so they can begin to interview for your replacement. D) low so the firm will think that they need to pay you more to prevent you from leaving.
C) decreases, shifts to the left.
As more firms enter a monopolistically competitive market, the individual firm's demand curve: A) increases, shifts to the right. B) stays the same. C) decreases, shifts to the left. D) It will vary greatly depending on the industry.
B) increase costs to new firms entering the market.
Barriers to entry are factors that: A) decrease costs to new firms entering the market. B) increase costs to new firms entering the market. C) increase costs to existing firms in the market. D) decrease costs to existing firms in the market.
B) different forms of price discrimination.
Bundling and tying are: A) essentially the same practices. B) different forms of price discrimination. C) often done at the same time. D) considered illegal in many countries.
B) profits; innovate
Bundling increases ________ and hence increases the incentives to ________. A) costs; innovate B) profits; innovate C) revenue; price higher D) demand; enhance customer service
B) higher prices, more stations, and better quality programming.
Deregulation of cable TV rates led to: A) lower prices and better service. B) higher prices, more stations, and better quality programming. C) lower prices, fewer stations, and lower quality programming. D) the proliferation of amateur programming.
A) gain market power when demand increases.
California's electricity crisis as illustrated in the chapter is partially explained by the fact that generators of electric power: A) gain market power when demand increases. B) gain market power when supply increases. C) gain market power when demand decreases. D) lose market power when demand increases.
B) I and III only
Cartel agreements tend to fail: I. If they produce manufactured rather than natural goods. II. If they produce natural rather than manufactured goods. III. In the long run as demand curves become more elastic. A) I only B) I and III only C) II and III only D) III only
B) perfect price discrimination.
Charging each customer his or her maximum willingness to pay is: A) unethical. B) perfect price discrimination. C) not a profit-maximizing strategy. D) impossible in practice.
B) contestable market.
Facebook dominates as the premier social networking site with more than 500 million members. However, Google has recently released Google+, a social networking site that makes it easy to create circles of information just for your friends, parents, and professional life. The market for social networking is a(n): A) interworked market. B) contestable market. C) intracompetitive market D) separating-equilibrium market.
C) I and III only
Firms in monopolistic competitive industries: I. sell their products at a higher price than if their industry were strictly competitive. II. sell their products at the same price as if they were in a monopoly market. III. have a high incentive to innovate with new products and better quality. A) I and II only B) II and III only C) I and III only D) I, II, and III
A) lowering prices and increasing production.
Firms operating in a cartel have a large incentive to cheat on the agreement by: A) lowering prices and increasing production. B) lowering both prices and production. C) raising prices and increasing production. D) raising prices and lowering production.
C) becoming the dominant standard.
Firms sometimes give away products for free in the hopes of: A) selling other goods they produce at a higher price. B) driving the competition out of business. C) becoming the dominant standard. D) creating a loyal customer base.
D) It creates a much cheaper distribution channel than previously available.
How has the Internet made the market for videos more contestable? A) Only professionals can create video content on the Internet. B) It severely limits the amount of content available to consumers. C) It creates new legal barriers to entry in the video distribution business. D) It creates a much cheaper distribution channel than previously available.
A) cheating when others cooperate.
In a cartel, the most profitable outcome is achieved by: A) cheating when others cooperate. B) cheating when others cheat. C) cooperating when others cooperate. D) cooperating when others cheat.
B) demand for the product is inelastic.
Monopolies will have more market power when one firm owns an input that is difficult to duplicate and the: A) demand for the product is elastic. B) demand for the product is inelastic. C) supply of the product is elastic. D) supply of the product is inelastic.
B) perfect competition and monopolies.
Monopolistic competition combines features of: A) oligopolies and monopolies. B) perfect competition and monopolies. C) elastic and inelastic goods. D) shortages and surpluses.
C) differentiated
Monopolistic competition features _____ products. A) identical B) only food, such as McDonald's and Burger King C) differentiated D) only electronic, such as Apple and Motorola
D) highly
Monopolistic competitive products are usually _____ advertised. A) never B) rarely C) occasionally D) highly
A) Any one man will be better off switching to the blonde.
The story of John Nash was captured in the movie A Beautiful Mind. The movie attempts to explain the Nash equilibrium with one striking blond woman and several brunettes at a bar. In the scene, all the men prefer the blonde. But Nash realizes, "If we all go for the blonde, we block each other. Not a single one of us is going to get her. So then we go for her friends. But they will give us the cold shoulder because no one likes being second choice. But what if no one goes for the blonde? We don't get in each other's way, and we don't insult the other girls. That's the only way we win." The scene ends with all the guys dancing with the brunettes while the blonde sits alone. Why is this NOT a Nash equilibrium? A) Any one man will be better off switching to the blonde. B) Two men would be better off if they coordinated to the same woman. C) There is a high switching cost to pursue the blonde. D) Women will respect the men more if they compete for their affection.
C) restaurants
Which of the following is the best example of a monopolistic competitive market? A) diamonds B) produce C) restaurants D) milk
C) Cartels should control natural resources that are rare and more valuable.
Which of the following statements regarding cartels is FALSE? A) Cheating by cartel members is less profitable and easier to detect if there are fewer firms in the industry. B) New entrants can be prevented when the cartel-controlled good is limited in supply. C) Cartels should control natural resources that are rare and more valuable. D) Cartels are more successful if they are backed by government and the power of the law.
C) Monopoly profit encourages firms to research and develop new drugs.
Which one of the following statements is correct? A) Patents are one way of preventing a monopoly. B) If pharmaceutical patents are enforced, the number of new drugs will decrease. C) Monopoly profit encourages firms to research and develop new drugs. D) Competition creates incentives for the invention of new drugs.
B) quiet study rooms
Which one would NOT be considered a network good? A) cell phones B) quiet study rooms C) e-mail programs D) online player versus player games
C) Network goods typically sell at a price higher than marginal cost.
Which statement is TRUE regarding network goods? A) Producers of network goods typically sell their product at a price below marginal cost. B) Competition among companies producing network goods drives the price down to equal marginal cost. C) Network goods typically sell at a price higher than marginal cost. D) Marginal cost always equals average cost for network goods.
C) Network goods might lose their dominance over time.
Which statement is TRUE? A) Network goods rarely ever face new competition. B) Network goods are usually sold by monopolistically competitive firms. C) Network goods might lose their dominance over time. D) Companies producing network goods compete "in the market," not "for the market."
