Test 2 Econ
The theory of oligopoly provides another reason that free trade can benefit all countries because
-As the number of firms within a given market increases, the price of the good falls -Increased competition leads to smaller dead weight loss
To increase their individual profits, members of a cartel have an incentive to
-Decrease price -Increase production -Cheat
The concept of a Nash equilibrium, when applied to an oligopoly situation,
-Illustrates the tension between self interest and cooperation -Relies on the logic of firms pursuing their own self-interests -relies on the notion that each firm chooses its best strategy, given the strategies that other firms have chosen
Which of the following explains why oligopolies often fail to maintain cooperation
-The story of the prisoners' dilemma -game theory -the fact that self-interest is not always consistent with collective group interest
a monopolist's marginal revenue is less than the price because
-To sell additional units of the good, the price charged on all units must be decreased -With the sale of an additional unit, the monopolist receives less revenue for each of the previous units it planned to sell.
A market force that can prevent firms from price discriminating is
Arbritage
Which of the following would definitely cause equilibrium price to rise?
Demand increases and supply decreases
A primary function of prices in a market economy is to provide participants with
Economic information
Firms that shut down in the short run still have to pay their
Fixed costs
suppose Jane is starting up a lemonade stand business. Variable costs for Jane's lemonade stand would include the cost of
Lemonade mix
Equilibrium prices in markets characterized by oligopoly are generally
Lower than in monopoly markets and higher than in perfectly competitive markets
A competitive market is one in which
There are so many buyers and sellers that each has a negligible impact on price
which of the following statements is true about patents and copyrights?
They both have benefits and costs, they lead to higher prices, they enhance the abilities of monopolists to earn above-average profits
When two firms advertise to attract the same customers,
They face a problem a similar to the prisoners' dilemma
Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are
a deadweight loss to society
In order to be successful, a cartel must
agree on the total level of production and on the amount produced by each member
One key difference between an oligopoly market and a competitive market is that oligopolistic firms
are interdependent while competitive firms are not
As a group, oligopolists would always be better off if they would act collectively
as a single monopolist
When a good is taxed
both buyers and sellers are worse off
A monopoly
can set the price it charges for its output but faces a downward sloping demand curve so it can earn unlimited profits
Price ceilings and price floors
cause surpluses and shortages to persist since price cannot adjust to the market equilibrium price
Monopoly firms have
downward-sloping demand curves and they can sell only a limited quantity of output at each price.
In a duopoly situation, the logic of self-interest results in a total output level that
exceeds the monopoly level, but falls short of the competitive level
competitive firms have
horizontal demand curves, and they can sell as much output as they desire at the market price
The entry of new firms into a competitive market will
increase market supply and decrease market prices
Economies of scale occur when
long-run average total costs fall as output increases
For a construction company that builds houses, which of the following costs would be fixed costs?
the long term lease for office space it occupies, the per year salary paid to the company's book keeper, the per year premium paid to an insurance company
