Microeconomicsfinalswagg

The case AGAINST advertising includes the fact that

firms spend large sums of money to create artificial differences among products.

You will still be able to listen to NPR (National Public Radio) whether or not you contribute to their fund-raising campaign, so you decide not to contribute. This is an example of the

free-rider problem.

Monopolies, oligopolies, and monopolistic competitive industries all

have market power.

A monopolistically competitive firm produces where

marginal revenue equals marginal cost.

45) Refer to Figure 15.1. If Dom's Barber Shop is maximizing profit, it is earning a profit of

$80

32) Refer to Table 14.1. The Nash equilibrium in the game is ________.

d) Both A and B are correct. [(Raise Price, Don't Raise Price) b) (Don't Raise Price, Raise Price)]

24) Refer to Figure 13.9. The amount of consumer surplus under monopoly is equal to area

GAB

You are in the market for a used 2006 Honda Accord. You know that half of the 2006 Accords are lemons and half are peaches. If you could be assured that the Accord you were buying was a peach, you would be willing to pay up to $10,000. On the other hand, you would only be willing to pay $2,000 for a lemon. You have no ability to discern whether any particular Accord is a lemon or a peach. Sellers of Accords, on the other hand, are likely to know whether their particular car is a lemon or a peach. Suppose sellers of lemons will sell their cars for $1,500 or more and peach sellers will be willing to sell their cars for $8,500 or more. You are willing to offer ________ for a car of unknown quality and ________ are willing to sell you their car.

$6,000; lemon owners only

44) Refer to Figure 15.1. The profit-maximizing number of haircuts for Dom's Barber Shop is

20 (MC=MR)

12) Refer to Figure 3 The profit-maximizing level of output for this monopolist is ________ units of output.

22 MC=MR

There are five firms with market shares of 30%,20%,10%,20%,20% respectively. What is the HHI index?

2200

46) Refer to Figure 15.1. From society's point of view, the efficient level of output is

25 Haircuts (MC=D)

In the area of market signaling, education is a strong signal in the job market because

education is less costly to obtain for highly productive individuals who are also likely to be highly productive in the work place.

Product differentiation that makes the product better for some consumers and worse for others is

horizontal differentiation.

For private goods, market demand is the ________ summation of individual demand curves and for public goods, market demand is the ________ summation of individual demand curves.

horizontal; vertical

Because of a patent, Alcoa is the only manufacturer of soda cans with a stay-put tab. Alcoa can earn a profit on the sale of soda cans with stay-put tabs

in the long run because entry into the industry by new firms is blocked until the patent expires.

The XYZ Computer Company has a monopoly over the production of a specialized color printer. The XYZ Computer Company will find it profitable to increase the production of specialized color printers as long as marginal cost

is less than marginal revenue.

Assuming no externalities exist, if a good's price is less than its marginal cost, then the benefits consumers derive are

less than the cost of resources needed to produce it and less should be produced.

In the long run, a monopoly

may earn positive economic profits due to entry barriers.

The restaurant industry is an example of a(n) ________ industry.

monopolistically competitive

The demand facing a monopolistically competitive firm is ________ a monopolistic firm and ________ a perfectly competitive firm.

more elastic than; less elastic than

Relative to a monopolized industry, a competitively organized industry is more likely to produce

more output, charges lower prices, and earns only a normal profit.

It would be inefficient to break up a ________ monopoly.

natural

A(n) ________ industry is characterized by strategic behavior.

oligopolistic

The four largest firms account for approximately 90% of U.S. beer sales. The U.S. beer industry would be best classified as a(n)

oligopoly

DeBeers' diamond monopoly results from

ownership of a scarce factor of production.

13) Refer to Figure 3 The profit-maximizing price for this firm is

$11 Straight up from MC=MR to D line

9) Refer to Figure 13.3. The marginal revenue of the fourth pound of cheese is

$3

50) Refer to Figure 16.1. To force this firm to produce the efficient level of output, the government should impose a tax of

$5.00 per bag of fertilizer. (Diff. btw Prices)

1. Consider an industry with a HHI index of 2600. There are 30 companies in this market. Two companies with market share of 15% and 20% respectively would like to merge. The department of justice would

Challenge the merger because the HHI index increases by more than 200 points

Horizontal product differentiation refers to

Differentiating products based on quality and/or characteristics of the good

Which of the following best explains why cable television consists of local monopolies?

Fixed costs are high, but the marginal cost of serving additional customers is low.

Which of the following features distinguishes monopolistically competitive firms from monopolies and oligopolies?

Monopolistically competitive firms cannot influence market price by virtue of their size alone while monopolies and oligopolies can.

A non-discriminating monopolist with positive marginal costs maximizes total profits when its marginal revenue is ________.

Positive

________ is (are) protected by barriers to entry, specifically ________.

State lotteries; government rules

In the labor market, contracts are often designed to include a variable salary component that is tied to some measure of performance. Why?

Such contracts provide workers with the incentive to work hard.

A non-discriminating monopolist maximizes total revenue when its marginal revenue is ________.

Zero

An externality is

a cost or benefit resulting from some activity or transaction that is imposed or bestowed on parties outside the activity or transaction.

In an imperfectly competitive industry,

a single firm has some control over the price of its output.

________ occurs when price- and quantity-fixing agreements among producers are implicit.

a) Tacit collusion

34) Refer to Table 14.3. Firm Aʹs dominant strategy is

a) to advertise.

Universal health coverage, lemon laws, and dealer warranties are all examples of tools used to reduce

adverse selection.

29) Refer to Figure 14.7. Six firms that produce chewing gum form a cartel. The cartel faces the market demand curve given by D. To maximize profits, the cartel should produce ________ packs of chewing gum and the price should be ________.

b) 12,000; $.40 (MC=MR, then go up to D line)

________ is a repeated game strategy in which a player responds in kind to an opponent's play.

b) Tit-for-tat

47) Refer to Figure 15.1. In this industry, in the long run,

b) firms will enter until all firms earn a normal profit.

In the Cournot model the final level of output falls between the output that would prevail if the market were ________ and the output that would be set by a ________.

competitive; monopoly

If the Herfindahl-Hirschman Index of an industry is less than 1,500, then the Antitrust Division of the Justice Department

considers the industry unconcentrated.

25) Refer to Figure 13.9. If Ohio Edison is regulated to act as a perfectly competitive firm (instead of the monopoly level),

consumer surplus would increase by the area FGBC.

33) Refer to Table 14.1. If both firms follow a maximin strategy, the equilibrium in the game is ________.

d) (Don't Raise Price, Don't Raise Price)

A company engaging in third degree price discrimination charges

different groups of the population different prices

Which type of barrier to entry allowed the electric company to maintain a monopoly over the production of electricity?

economies of scale

The Exclusive Gift Company has a monopoly over the sale of gold hula hoops. This company is currently pricing and producing where marginal revenue is equal to marginal cost. It is selling 50 gold hula hoops at a price of $5,000 each. Total costs for the company are $300,000 of which fixed costs are $100,000. You are hired as an economic consultant to this company. You should advise this monopolist to

produce in the short run but exit the industry in the long run if conditions do not change.

Market power refers to a firm's ability to

raise price without losing all sales of its product.

According to the Five Forces Model, ________ are the five competitive forces that determine the level of competition and profitability in an industry.

rivals, buyers, suppliers, substitutes, and potential entrants

The Internet has had a significant influence on advertising in all of the following ways EXCEPT:

the Internet has reduced the level and transparency of informational advertising.

The Coase theorem states that

under certain conditions, private parties can arrive at the efficient solution without government involvement.