Microeconomics Review-Oligarchy
A major distinction between a monopolistically competitive firm and an oligopolistic firm is that
A recognized interdependence exists between firms in one industry but not in the other
Mutual interdependence means that each firm in an oligopoly
Considers the reactions of its rivals when it determines its pricing policy
Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will
Decide to increase advertising expenditures even if it means a reduction in profits
You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that
The four largest firms account for 20 percent of industry sales
Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that:
The industry is less concentrated than suggested by domestic concentration ratios
Which of the following factors most likely would explain why a U.S. company would choose to operate in the United States despite much lower wages in Mexico?
The lower productivity of Mexican workers
Under monopolistic competition, a firm's ability to influence the price of the product it sells arises because
The product of each seller is differentiated from that of others
The opportunity cost of leisure
increases as wages get higher.
If a monopolistically competitive firm is earning economic profits in the short-run, then
These profits will be eliminated in the long-run as new firms enter the industry.
Mergers of firms in an industry tend to
Transform monopolistic competition into oligopoly
A firm in a cartel typically cheats on its collusive agreement by raising its price and restricting output more than it agreed to with other cartel members
True
A game in which one firm's gain must equal the other firm's loss is called a
Zero-sum game
If a market with monopolistic competition became a monopoly market, output would
fall
Which constitutes an obstacle to collusion among oligopolists?
A large number of firms
Which cannot be a characteristic of an oligopolistic industry
A perfectly elastic firm demand curve
In competing with rivals, oligopolistic firms will tend to use
Advertising because it is less easily duplicated than price cuts
Collusion refers to a situation where rival firms decide to
Agree with each other to set prices and output
A monopsonist facing many suppliers of labor will employ
fewer workers than a firm operating in a perfectly competitive labor market
When a monopolistically competitive industry is in long-run equilibrium
firms earn zero economic profits
In the market for bank credit a large bank sometimes announces a change in interest rates. After the changes in interest rates are announced, other banks in the industry usually react by changing their rates in the same way. This is an example of:
implicit collusion.
A reduction in the supply of labor will cause wages to
increase and employment to decrease
The central characteristic of oligopolistic industries is
interdependent pricing decisions.
A monopsonist will pay a wage that
is less than that in a perfectly competitive labor market
Suppose that the men's suit business is monopolistically competitive. It follows that in equilibrium, the marginal revenue of any firm in the industry
is less than the price
A monopolistically competitive firm faces a downward-sloping demand curve
True
Brand names and packaging are forms of product differentiation under monopolistic competition
True
Efficiency wages are above-market wages that are paid to workers to keep them productive
True
Game-theory model analyzes the interdependence of oligopolists' strategies
True
If an oligopolist's competitors follow its price cuts but ignore its price increases, the oligopolist would end up holding its price constant even if its marginal cost changes
True
Monopolistically competitive firms have some control over the price of their products
True
That one thing that monopolistic competition provides, which is not assured in the other market structures, is product variety.
True
The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve
True
The demand for labor is derived from the demand for output
True
Mutual interdependence means that
A firm's behavior is affected by other firms' actions
Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is
2150
Industry Y is dominated by five large firms that hold market shares of 20, 25, 15, 10, and 25 percent. The four-firm concentration ratio for this industry is
85 percent
Collusion among oligopolistic firms
Becomes more difficult if the firms all have different cost and demand curves
A firm in an oligopoly is similar to a monopoly in that
Both firms could have significant market power and control over price
If an oligopolist's demand curve has a "kink" in it, then over some interval
Changes in marginal cost will not cause a change in the profit-maximizing price
If the demand for legal services decreases, the demand for legal assistants probably will
Decrease
The Organization of Petroleum Exporting Countries (OPEC) is an international cartel. If the cartel were to hire a consulting firm to monitor the production rates of member countries, the economic reason for this monitoring is to
Detect those member countries which are depressing prices by producing more than their assigned quotas
The consumer wifi-service providers' market is best described as a:
Differentiated oligopoly
A low concentration ratio means that
Each firm accounts for a small market share of the industry
A homogeneous oligopoly means that the few firms in the industry have identical cost and demand curves
False
If the representative firm in a monopolistically competitive industry has an optimal output where P < ATC, the industry will expand in the long run
False
OPEC functions as a classic example of a kinked demand curve oligopoly
False
Prices in oligopolistic industries are predicted to fluctuate widely and frequently compared to other market structures.
False
Significant barriers to entry exist in a monopolistically competitive industry
False
The supply of labor generally is considered to be downward-sloping because the opportunity cost of leisure decreases as wages increase
False
When a monopolistically competitive firm is in long-run equilibrium, average total cost is at its minimum
False
A market in which a single firm hires labor but workers compete against one another for jobs is a bilateral monopoly
False A bilateral monopoly exists when there is one seller and one buyer in a market
Under monopolistic competition, there are:
Few barriers to entry
A high concentration ratio indicates that
Few firms produce most of the output in an industry
The price at which a monopolistically competitive firm sells its product
exceeds the marginal cost of production
One shortcoming of the kinked demand curve model of oligopoly is that it does not explain
How the current price gets determined
Interindustry competition refers to the fact that
In some markets the producers of a certain commodity might face competition from products of other industries
The labor supply curve is generally considered to be upward-sloping because the opportunity cost of leisure
Increases as wages get higher
The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of
Interindustry competition
Which statement concerning the kinked demand curve model of oligopoly is false?
It assumes when one oligopolist raises the price, all others will follow
The Herfindahl index is a measure of:
Market power in an industry
A unique feature of an oligopolistic industry is
Mutual interdependence
In the kinked demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to
Not change their prices
The tablet-computer market is best characterized as a(n):
Oligarchy
Which of the following market structures does not have predictable price and output decisions at which the firms will rationally arrive?
Oligarchy
In which set of market models are there the most significant barriers to entry?
Oligopoly and pure monopoly
For a monopolistic competitor:
P = ATC in long-run equilibrium.
For a monopolistic competitor
P>MR
A major prediction of the kinked demand curve model is
Price stability in oligopolies
Which statement about oligopoly is false?
Prices in oligopoly are predicted to fluctuate widely and frequently
The kinked demand model of oligopoly assumes that
Rivals will ignore price increases but will match price cuts
Informal collusion to restrict output and increase prices is sometimes referred to as a
Tacit understanding
Under monopolistic competition, a long-run equilibrium exists when price equals
average total cost.
If robotics and factory automation become more widespread in an industry and all else is held constant
both the demand for labor in that industry and the wage rate should decrease
The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a
downward-sloping demand curve and price exceeds marginal cost in equilibrium
When IBM sold its personal computer business to Lenovo, one analyst remarked that the PC business was "a corner of the technology market where few companies have been able to generate consistent profits." This low-profit result would be expected if the PC business
is monopolistically competitive
Suppose an oligopolistic firm assumes that its rivals will ignore a price increase but match a price cut. In this case, the firm perceives its demand curve to be
kinked, being steeper below the going price than above
To be successful in increasing prices for their product, members of a cartel
limit output.
Monopolistic competition is similar to perfect competition in that
long-run profits tend to zero in both
Researchers have found that the income of obese women is about 17 percent lower than that of women who are of the recommended weight when both sets of women are equally productive. This result implies that there:
may be discrimination on the basis of "beauty."
If a profit-maximizing oligopolist has a kinked demand curve, then a downward shift in its marginal cost curve
might not affect output or price.
There are many restaurants in the city of Raleigh, each one offering food and services that differ from those of its competitors. There is also free entry of sellers into the market, and each seller serves a very small fraction of the total number of meals served each day. The restaurant industry in Raleigh is best categorized as:
monopolistically competitive.
Other things held constant in a competitive labor market, if workers negotiate a contract in which the employer agrees to pay an hourly wage rate of $17.85 while the market equilibrium hourly wage rate is $16.50, the
quantity of workers supplied will exceed the quantity of workers demanded
Recently, Wendy's fast-food restaurant began to offer fruit or salad as a substitute for French fries in its value meals. It made sense for Wendy's to advertise this fact as long as doing so
raised revenue by more than it raises the cost of advertising
If a monopolistically competitive market became perfectly competitive, output would likely
rise
If the market for tires is monopolistically competitive, then
sellers can influence the market price of the product
If the fast-food industry is monopolistically competitive, then a profit-maximizing firm in this industry sells its product at a price
so that marginal revenue and marginal cost are equal.
The difference between a monopolist and a monopolistic competitor is that
the average total cost curve of a monopolistic competitor is tangent to the demand curve in long-run equilibrium, but the average total cost curve of a monopolist can be in a position below the price in long-run equilibrium.
As firms leave a monopolistically competitive industry that is sustaining economic losses
the demand curves facing the remaining firms in the industry shifts to the right
The demand for labor is a derived demand because
the demand for labor comes from the demand for output
The larger the Herfindahl index
the greater the degree of market power in an industry
Under oligopoly
there are only a few sellers in the industry
According to economist Colin Camerer of the California Institute of Technology, many New York taxi drivers decide when to finish work by setting an income goal for themselves. If this is true, on busy days when the effective hourly wage is higher, tax drivers will:
work fewer hours than they will on slower days.
