Practice quiz on competition
As compared to a normal monopolist, a price discriminating monopolist: is illegal earns the same profits earns higher profit earns lower profit
Earns higher profit
If a purely competitive firm shuts down in the short run: -it will realize a loss equal to its total costs -it will realize a loss equal to its total variable costs -its loss will be zero - it will realize a loss equal to its total fixed costs
it will realize a loss equal to its total fixed costs
Sometimes firms choose to form a cartel when they produce. The purpose of a cartel is to: -limit output - take advantage of economies of scale . -enhance competitiveness . -lower prices in order to sell more output .
limit output
W hich of the following are implicit costs for a typical firm? -the cost of raw materials - insurance costs -electricity costs -opportunity costs of capital owned and used by the firm -cost of labor hired by the firm
opportunity costs of capital owned and used by the firm
Marginal product is: -the increase in total cost attributable to the employment of one more worker. -the increase in total output attributable to the employment of one more worker . -total product divided by the number of workers employed . -the increase in total revenue attributable to the employment of one more worker .
the increase in total output attributable to the employment of one more worker .
A natural monopoly, such as your local water company, is characterized by -low fixed costs and diseconomies of scale -a lack of government regulation -constant costs of production -large economies of scale -a lack of profit if left unregulated
Large economies of scale
If average total cost is declining, then: -marginal cost must be less than average total cost . -the average fixed cost curve must lie above the average variable cost curve . -total cost must also be declining . -marginal cost must be greater than average total cost.
Marginal cost must be less than average total cost
Assuming the demand curve that a pure monopolist faces is downward-sloping, as it lowers the price it charges its total revenue: -may be either rising or falling -is falling -is rising -must be negative.
May be either rising or falling
When production increases, the average variable cost and average total cost curves: cross move closer together . become horizontal spread further apart.
Moves closer together
It is more efficient for a single mail carrier to deliver mail to every house on a block than for 10 mail carriers to each deliver to a single house. This argument implies that mail delivery is a: oligopoly natural monopoly contestable market competitive industry
Natural monopoly
Which of the following is true of the relationship between price and marginal cost under monopolistic competition? -P > MC at the profit - maximizing quantity - P < MC at the profit - maximizing quantity -P < MC at the quantities below the profit-maximizing quantity -p = MC at all levels of output -P = MC only at the profit-maximizing quantity
P > MC at the profit - maximizing quantity
Which of the following is not considered a barrier to entry ? economies of scale network effects perfect price discrimination licensing
Perfect price discrimination
Economic profits in a competitive industry are signals that -indicate that business conditions are improving -attract new firms into the industry -cause the industry's resources to be used in lower valued uses -prevent firms from adopting newer technologies -encourage existing firms to continue to operate inefficiently
attract new firms into the industry
Total fixed cost divided by the level of output yields -average fixed costs per unit -marginal cost per unit -average total cost per unit -marginal productivity per unit of fixed resource -average variable cost per unit
average fixed costs per unit
The average total cost of producing electronic calculators in a factory is $20 at the current output level of 1000 units per week. If fixed cost is $10000 per week: accounting profits are positive average fixed cost is $20. total cost is $30,000 average variable cost is $10.
average variable cost is $10.
Game theory can be used to demonstrate that oligopolists: -rarely consider the potential reactions of rivals. -experience economies of scale. -can increase their profits through collusion -may be either homogeneous or differentiated .
can increase their profits through collusion
The MR = MC rule can be restated for a purely competitive seller as P = MC because: -the firm's average revenue curve is downsloping- -the firm's marginal revenue and total revenue curves will coincide -the market demand curve is Downsloping - each additional unit of output adds exactly its price to total revenue.
each additional unit of output adds exactly its price to total revenue.
Collusion occurs when -a firm chooses a level of output to maximize its own profit -firms refuse to follow their price leaders -firms coordinate to increase joint profits - two firms' price and output decisions come into conflict
firms coordinate to increase joint profits
Which of the following is likely to be present in a perfectly competitive market? -all of the answers provided can be present in perfect competition -patents - which limit which firms can produce -firms producing identical products -high capital costs required to enter the industry
firms producing identical products
Assume that an industry is perfectly competitive. In this industry we are likely to find -firms producing a wide variation of similar products -barriers to entry -no profit possible in the short run -firms that do not advertise
firms that do not advertise
The demand curve a monopolist faces -will not shift in response to a change in consumer tastes -is more elastic than a perfectly competitive firm's demand curve -is the market demand curve -is as elastic as a perfectly competitive firm's demand curve -is not affected by the prices of complements
is the market demand curve
The reason a natural monopolist cannot set price equal to marginal cost is that: -it would earn excessive profits , which would attract new firms into the market. -it would then be forced to produce more than the socially optimal level of output -it would suffer losses since price would be less than average cost. -it would then be forced to produce more than it could sell.
it would suffer losses since price would be less than average cost.
If a pure monopolist is producing at that output where P = ATC then: -it will be producing less than the profit-maximizing level of output. -will be realizing losses . -its economic profits will be zero. -it will be realizing an economic profit .
its economic profits will be zero.
A prisoner's dilemma can be described as a situation in which -the summation of individual demand curves creates an inelastic demand curve facing the industry -producers act so as to avoid maximizing profits because of government retaliation -a decision maker is uncertain about the potential punishment for something done in the past -individual firms seeks to maximize their own profits with no regard for the group -non-cooperative self-interest hurts everyone
non-cooperative self-interest hurts everyone
In long-run equilibrium, -perfectly competitive firms can earn only a normal profit -perfectly competitive firms in an increasing-cost industry can earn economic profit -perfectly competitive firms in a decreasing-cost industry can earn economic profit -perfectly competitive firms in a constant-cost industry can earn economic profit
perfectly competitive firms can earn only a normal profit
Economic profit in the long run is: -possible for both a pure monopoly and a firm in perfect competition - only possible when barriers to entry are nonexistent. -impossible for both a pure monopolist and a firm in perfect competition. -possible for a pure monopoly , but not for a firm in perfect competition.
possible for a pure monopoly , but not for a firm in perfect competition.
Nondiscriminating monopoly is similar to perfect competition in that -price equals marginal revenue for both -they have the same level of barriers to entry -the demand curve facing the firm is perfectly elastic for both -they have a similar number of firms in the industry -price equals average revenue for both
price equals average revenue for both
A profit-maximizing firm in a perfectly competitive market that is facing a price of $10 decides to produce 100 widgets. This results in an economic profit of $80. If the marginal cost of producing the 100th widget was $12 then this firm should: -continue producing 100 -produce more than 100 -produce less than 100 -set the price at $ 12
produce less than 100
Economies of scale are indicated by: -rising marginal cost curve . -the rising segment of the average variable cost curve. -the difference between total revenue and total cost. -the declining segment of the long-run average total cost curve.
the declining segment of the long-run average total cost curve.
Bart operates a lemonade stand in front of his house . His father works at the Springfield Nuclear Power Plant . Which of the following is most likely to be true about the calendar time period associated with the short run for the two industries ? -The short run is shorter for the power plant than it is for the lemonade stand . -The short run is the same for the power plant as it is for the lemonade stand . -The short run is longer for the power plant than it is for the lemonade stand. -The short run would be one year for the lemonade stand and exactly two years for the nuclear plant .
The short run is longer for the power plant than it is for the lemonade stand.
Josh is going to produce hula-hoops. Assume that as the first 5 workers are added, total product rises as follows: 9, 16, 21, 25, and 27. The marginal product of the third worker is 5 46 21 3 Negative
5
If all six suppliers of cement to Metropolis City sign an agreement that establishes an agreed-upon price of $45 per ton, this would be price discrimination a cartel beneficial to consumers cost -plus pricing a legal contract
A cartel
Which of the following about a monopoly is false? -A monopoly will adjust output until marginal revenue equals marginal cost -The demand curve for a monopolist's product is downward sloping -There must be a barrier to entry if a monopoly is to continue to earn economic profits in the long run -A monopoly will set price equal to minimum average total cost in the long run.
A monopoly will set price equal to minimum average total cost in the long run.
Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct ? -AP reaches a maximum before TP reaches a maximum . -AP continues to rise so long as TP is rising . -TP reaches a maximum when the MP of the variable input becomes zero . -MP cuts AP at the maximum AP
AP continues to rise so long as TP is rising .
When AFC is falling AVC may be falling or rising ATC must be falling TFC must be falling MC must be falling
AVC may be falling or rising
OPEC provides an example of: -noncollusive oligopoly . -an attempt at tacit ( implicit) collusion -an attempt at explicit collusion -a monopolistically competitive industry.
An attempt at explicit collusion
In recent years, the number of farms has fallen while the average farm size has increased. What concept best explains this phenomenon? declining productivity diminishing marginal returns economies of scale good weather in midwestern states diseconomies of scale
Economies of scale
Which of the following is unique to oligopoly among all the market structures? -long-run economic profits -product differentiation -profit maximization -advertising -collusion
Collusion
Suppose a monopolist is at the profit-maximizing output level. If the monopolist sells another unit of output then : -Profits become negative -Total revenues will fall -MR becomes negative -Consumer surplus rises
Consumer surplus rises
Consider a firm that is a pure monopolist. If MR < MC , the monopolist should: -increase production . -possibly want to maintain the same level of production . -stop producing -decrease production .
Decrease production
Tim Tupper's term paper-typing business is a perfectly competitive firm in long-run equilibrium. Which of the following does not describes the firm's situation? -It will be minimizing average total cost -It will be charging a price equal to average total cost - It will be earning a normal profit. -It will be charging a price equal to marginal cost -Entrepreneurs outside the industry will be eager to enter.
Entrepreneurs outside the industry will be eager to enter
Assume females have more inelastic demand for all of the products listed below. For which of the following products would price discrimination be easiest? orange juice haircuts pencils gasoline
Haircuts (can't be resold)
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 (tacit) collusion. price discrimination the prisoner's dilemma. monopolistic competition.
Implicit (tacit) collusion
In the case of a natural monopoly, as the number of firms competing increases, the average cost of production: -decreases . -increases -may rise or fall depending on the number of consumers -stays the same.
Increases
Once a firm hits the point of diminishing marginal product of labor it might want to hire more labor it is maximizing production it should stop hiring labor It should fire workers
It might want to hire more labor
A monopolist engages in price discrimination to: -earn more profit than would be possible if every buyer paid the same price. -increase output beyond the profit-maximizing level. -further restrict output to increase its profits. -allow some persons to purchase the good who could not normally afford to do so.
earn more profit than would be possible if every buyer paid the same price.
Which of the following is not true with regard to economic profit? -long-run economic profit is always zero in perfect competition -economic profit is any profit greater than a normal profit -economic profit equals total revenue minus total cost -economic profit excludes implicit cost
economic profit excludes implicit cost
If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that: -the firm is encountering diminishing returns . -economies of scale are being realized . -technological progress has occurred. diseconomies of scale are being encountered.
economies of scale are being realized .
The DeBeers Company exercises monopoly power in the distribution of diamonds . If the company earns economic profits, the price of diamonds per carat will: -be equal to the average total cost of diamonds . -be lower than the price that would be charged in the long run under competitive conditions -be equal to the marginal cost of diamonds . -exceed the price that would be charged in the long-run under competitive conditions .
exceed the price that would be charged in the long-run under competitive conditions .
The prisoner's dilemma: -explains why two firms might cut prices even though it reduces joint profits. -exists in monopolistically competitive industries. -occurs because firms trust one another but cannot collude -produces optimal outcomes for all participants if they just do what is best for themselves.
explains why two firms might cut prices even though it reduces joint profits.