Econ Final Pt.2

Front 1

Which of the following would be most likely to have monopoly power?

Back 1

A. a local cable TV provider

Front 2

A fundamental source of monopoly market power arises from

Back 2

C. barriers to entry.

Front 3

A firm that is a natural monopoly

Back 3

A. is not likely to be concerned about new entrants eroding its monopoly power.

Front 4

Refer to Figure 15-4. If the monopoly firm is currently producing Q4 units of output, then a decrease in output will necessarily cause profit to

Back 4

C. increase as long as the new level of output is at least Q2.

Front 5

Refer to Figure 15-5. A profit-maximizing monopoly's total revenue is equal to

Back 5

D. P2 x Q3.

Front 6

Refer to Figure 15-7. In order to maximize profits, the monopolist should charge a price of

Back 6

20$

Front 7

The economic inefficiency of a monopolist can be measured by the

Back 7

D. deadweight loss.

Front 8

To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where

Back 8

C. MC intersects the demand curve.

Front 9

Refer to Figure 15-14. If the monopoly operates at an output level less than Q0, then an increase in output toward (but not exceeding) Q0 would

Back 9

A. lower the price and raise total surplus.

Front 10

A market force that can prevent firms from price discriminating is

Back 10

arbitrage

Front 11

If the government regulates the price that a natural monopolist can charge to be equal to the firm's marginal cost, the firm will

Back 11

D. earn negative profits, causing the firm to exit the industry.

Front 12

Refer to Figure 15-21. What is the price and quantity for this natural monopolist under fair return pricing?

Back 12

A. F and K

Front 13

In a monopolistically competitive industry, firms set price

Back 13

C. above marginal cost since each firm is a price setter.

Front 14

A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market

Back 14

C. faces a downward-sloping demand curve for its product.

Front 15

A firm operating in a monopolistically competitive market can earn economic profits in

Back 15

D. the short run but not in the long run.

Front 16

Refer to Figure 16-2. In order to maximize profit, the firm will charge a price of

Back 16

36

Front 17

Refer to Figure 16-2. If the ATC=40 at the profit-maximizing level of output, which of the following will occur in the long run in this industry?

Back 17

B. Firms will exit this industry.

Front 18

Refer to Figure 16-3. What is the profit-maximizing price, quantity, and resulting profit?

Back 18

B. P=$80, Q=20 units, profit=$200

Front 19

Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry?

Back 19

c

Front 20

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

Back 20

D. P > MC and demand = ATC

Front 21

In a long-run equilibrium,

Back 21

B. only a perfectly competitive firm operates at its efficient scale.

Front 22

Under which of the following market structures would consumers likely pay the highest price for a product?

Back 22

monopoly

Front 23

A monopolistically competitive market could be considered inefficient because

Back 23

C. price exceeds marginal cost.

Front 24

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

Back 24

D. firms would require a subsidy to stay in business

Front 25

Professional organizations and producer groups have an incentive to

Back 25

D. restrict advertising in order to reduce competition on the basis of price.

Front 26

Most businesses advertise their products and services. Some business use SPAM emails to advertise because the cost of a mass e-mail is close to zero. Other business spend millions of dollars to advertise in a 30-second spot during the Super Bowl. Having observed this real world data, economists argue that the amount of money that a business spends on advertising is a proxy for a good or service's

Back 26

quality

Front 27

Which of the following statements is not correct?

Back 27

D. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.

Front 28

A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called

Back 28

C. a Nash equilibrium.

Front 29

The theory of oligopoly provides another reason that free trade can benefit all countries because

Back 29

A. as the number of firms within a given market increases, the price of the good decreases.

Front 30

Other things the same, in which case is the quantity produced the highest?

Back 30

B. There are a very large number of firms.

Front 31

When strategic interactions are important to pricing and production decisions, a typical firm will

Back 31

B. consider how competing firms might respond to its actions.

Front 32

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is

Back 32

D. a bad outcome for both players.

Front 33

When the prisoners' dilemma game is generalized to describe situations other than those that literally involve two prisoners, we see that cooperation between the players of the game

Back 33

C. can be difficult to maintain, even when cooperation would make both players of the game better off.

Front 34

In game theory, a Nash equilibrium is

Back 34

A. an outcome in which no player wishes to change her chosen strategy given the strategies chosen by the other players.B. the outcome that occurs when all players have a dominant strategy.C. an outcome in which each player is doing his best given the strategies chosen by the other players

Front 35

In the prisoners' dilemma,

Back 35

B. when each player chooses his dominant strategy the players reach a Nash equilibrium.

Front 36

A cooperative agreement among oligopolists is less likely to be maintained,

Back 36

C. the greater the number of oligopolists.

Front 37

A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price rises to $14, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its

Back 37

A. quantity of output is higher than it was previously.

Front 38

Which of the following statements best expresses a firm's profit-maximizing decision rule?

Back 38

. If marginal revenue is greater than marginal cost, the firm should increase its output.B. If marginal revenue equals marginal cost, the firm should continue producing its current level of output.C. If marginal revenue is less than marginal cost, the firm should decrease its output.

Front 39

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should

Back 39

C. increase its output.

Front 40

The competitive firm's short-run supply curve is its .

Back 40

D. marginal cost curve, but only the portion above the minimum of average variable cost

Front 41

Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run and shutting down?

Back 41

pd

Front 42

Refer to Figure 14-3. If the market price is $10, what is the firm's total revenue?

Back 42

50

Front 43

Refer to Figure 14-4. When price rises from P3 to P4, the firm finds that

Back 43

C. it can earn a positive profit by increasing production to Q4.

Front 44

Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total costs

Back 44

C. can be represented by the area P3 × Q2.

Front 45

In the long run, each firm in a competitive industry earns

Back 45

zero economic profits

Front 46

Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

Back 46

C. increase.

Front 47

Suppose that a competitive market is initially in equilibrium. Then demand increases. If some resources used in production are not available in sufficient quantities for entering firms,

Back 47

B. the long-run market supply curve will be upward sloping.

Front 48

Which of the following statements best reflects a price-taking firm?

Back 48

C. If the firm were to charge more than the going price, it would sell none of its goods.

Front 49

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

Back 49

C. remain unchanged.

Front 50

An industry is a natural monopoly when a single firm can supply a good or service to an entire market at a lower cost than could two or more firms due to average total cost decreasing as output increases. For any given amount of output, a larger number of firms leads to less output per firm and higher average total cost. See Section: Natural Monopolies.

Back 50

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Front 51

Like a competitive firm, the monopolist’s profit-maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve, therefore . Unlike a competitive firm, however, the monopolist’s profit-maximizing price is greater than marginal revenue ( ). See Section: Profit Maximization.

Back 51

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Front 52

The monopolist’s profit-maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve. The price it charges is determined by the point on the demand curve that corresponds to this level of output. An increase in fixed costs does not alter the marginal revenue or the marginal cost, therefore it does not affect the optimal level of output or the optimal price. It does, however, cause profit to decrease because profit equals total revenue minus total costs, and fixed costs are a component of total costs. See Section: Profit Maximization.

Back 52

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Front 53

The monopolist chooses to produce and sell the quantity of output at which the marginal-revenue and marginal-cost curves intersect, which is lower than the socially efficient quantity (found where the demand curve and the marginal-cost curve intersect). Furthermore, the price a monopolist charges is higher than the marginal cost, meaning that there are some consumers who value the good more than the marginal cost (but less than the price) who do not receive the good. The price is therefore too high compared to the social optimum. See Section: Monopoly versus Competition.

Back 53

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Front 54

Deadweight loss is the reduction in economic well-being that results from the monopoly’s use of its market power. When a monopolist charges a price above marginal cost, some potential consumers value the good at more than its marginal cost but less than the monopolist’s price. These consumers do not buy the good. Because the value these consumers place on the good is greater than the cost of providing it to them, this result is inefficient. See Section: The Deadweight Loss.

Back 54

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Front 55

Perfect price discrimination describes a situation in which the monopolist knows exactly each customer’s willingness to pay and can charge each customer a different price. In this case, the monopolist charges each customer exactly his or her willingness to pay, and the monopolist gets the entire surplus in every transaction. When a monopolist charges a single price, some consumers get positive consumer surplus, therefore the switch to perfect price discrimination reduces consumer surplus. See Section: The Analytics of Price Discrimination.

Back 55

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Front 56

Which of the following conditions does NOT describe a firm in a monopolistically competitive market?

Back 56

It takes its price as given by market conditions.

Front 57

Monopolistic competition describes a market structure in which there are many firms selling products that are similar but not identical. In a monopolistically competitive market, each firm has a monopoly over the product it makes, but many other firms make similar products that compete for the same customers.

Back 57

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Front 58

A key feature of monopolistic competition is product differentiation. That is, each firm produces a product that is at least slightly different from those of other firms. The market for soft drinks is characterized by product differentiation, whereas the markets for wheat, tap water, and crude oil are not. See Section: Between Monopoly and Perfect Competition.

Back 58

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Front 59

A monopolistically competitive firm will increase its production if

Back 59

marginal revenue is greater than marginal cost.

Front 60

As long as price is greater than average total cost, firms in a monopolistically competitive market will make positive economic profit, and therefore, new firms will enter. If the price falls below average total cost, firms will suffer losses and some will exit; therefore, the market is in long-run equilibrium when price is equal to average total cost. See Section: The Long-Run Equilibrium.

Back 60

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Front 61

In a perfectly competitive market, firms produce at the minimum of average total cost, but in a monopolistically competitive market in long-run equilibrium, firms produce a quantity of output that is below this level. The firm forgoes this opportunity to produce more because it would need to cut its price to sell the additional output. It is more profitable for a monopolistic competitor to continue operating with excess capacity

Back 61

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Front 62

Advertising often tries to convince consumers that products are more different than they truly are. By increasing the perception of product differentiation and fostering brand loyalty, advertising makes buyers less concerned with price differences among similar goods, thereby decreasing the elasticity of demand for a particular brand. When a firm faces a less elastic demand curve, the firm can increase its profits by charging a larger markup over marginal cost

Back 62

V

Front 63

The key feature of an oligopolistic market is that

Back 63

a small number of firms are acting strategically.

Front 64

If an oligopolistic industry organizes itself as a cooperative cartel, it will produce a quantity of output that is ________ the competitive level and ________ the monopoly level.

Back 64

less than, equal to

Front 65

If an oligopoly does not cooperate and each firm chooses its own quantity, the industry will produce a quantity of output that is ________ the competitive level and ________ the monopoly level.

Back 65

less than, more than

Front 66

As the number of firms in an oligopoly grows large, the industry approaches a level of output that is ________ the competitive level and ________ the monopoly level.

Back 66

eqUAL TO more than

Front 67

The Prisoners’ Dilemma is a two-person game illustrating that

Back 67

even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate.

Front 68

The anti-trust laws aim to

Back 68

prevent firms from acting in ways that reduce competition.

Front 69

A perfectly competitive firm

Back 69

is a price taker

Front 70

IN a competive market

Back 70

At the profit-maximizing level of output, marginal revenue and marginal cost are exactly equal. Because a competitive firm’s output quantity does not affect the price, marginal revenue is always equal to the price, therefore the firm chooses the quantity at which marginal cost equals the price.

Front 71

A competitive firm’s short-run supply curve is its ________ cost curve above its ________ cost curve.

Back 71

marginal, average variable

Front 72

If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will

Back 72

keep producing in the short run but exit the market in the long run.

Front 73

At the profit-maximizing level of output, marginal revenue and marginal cost are exactly equal. Because a competitive firm’s output quantity does not affect the price, marginal revenue is always equal to the price; therefore, the firm chooses the quantity at which marginal cost equals the price

Back 73

In the long run, if the price is less than the average total cost, the firm chooses to exit (or not enter) the market; if the price is less than the average total cost, the firm enters the market. Therefore, in the long-run equilibrium, price is equal to average total cost