Micro Econ 182 Chap 14

Front 1

markup

Back 1

the amount by which price exceeds maginal cost

Front 2

excess capacity

Back 2

if a firm produces less than the quantity at which ATC is a minimum

Front 3

efficicient scale

Back 3

the quantity at which ATC is at a minimum

Front 4

monoplistic competition

Back 4

larger # of firms compete

each firm produces a differentiaeted product

compete on product quantity, price, and marketing

no barriers to entry

no long run economic profit

Front 5

monopolisitic competition vs prefect comp

differences

Back 5

markup

excess capacity

Front 6

when can new firms enter in monompolistic cometition?

Back 6

while they can still earn economic profit

P>ATC

Front 7

larger # of firms means:

Back 7

each have:

smaller market share

limited market power to influence price

sensitive to market price

dont care what other firms do

actiosn of one dont directly effect others

no collusion/no conspiring to fix prices

Front 8

product differentation

Back 8

firm makes a product thats slightly different form the competing firms

causes downward slopping demand

Front 9

product differentation allows firms to compete in:

Back 9

price

quality

marketing

trade-off between price and quality

Front 10

product differentation: marketing

Back 10

advertising and packaging

Front 11

price and output:

profit-maximizing quantity

Back 11

MR=MC

Front 12

price and output:

price determined by:

Back 12

the demand at profit maximizing quantity

Front 13

price and output:

economic profit:

Back 13

P>ATC

Front 14

price and output:

zero economic profit:

Back 14

P=ATC

Front 15

at profit maximizing quantity:

Back 15

P

Front 16

in long run, econic profit induces:

Back 16

entry to market as long as P>ATC

Front 17

as demand for product decreases demand curves shifts:

Back 17

leftward

Front 18

price and quanitity fall until

Back 18

p=ATC and firm earns zero economic profit

Front 19

in perfect ometition:

Back 19

no excess capacity and no markup

perfectly elastic demand

Front 20

mono comp

price equals

Back 20

MSB

marginal social benifit

Front 21

mono comp in long run produces:

Back 21

less then efficient quantity, becasue price execeds maginal cost

Front 22

the markup that drives a gap between price and marginal cost arises from

Back 22

product differetiation

Front 23

efficient degree of producut variety

Back 23

when marginal social benefit of product variety equals its marginal socal cost

MSB of product =MSC

Front 24

mono comp

to maintain economic profit, a firm must:

Back 24

continously be in a state of product development

Front 25

new product develpometn allows:

Back 25

a firm to gain a competitive edge, if only temporarily, beform competitors imitate the innovation

Front 26

innovation

Back 26

cotly but increases total revenue

Front 27

firm pursues product development until

Back 27

MR=MC

Front 28

produciton developmetn is efficient if:

Back 28

MSB=MSC

Front 29

1) In a monopolistically competitive market there are

Back 29

many firms.

Front 30

2) In monopolistic competition, there are

Back 30

A) many firms making a differentiated product.

Front 31

4) In monopolistic competition, when firms make an economic profit,

Back 31

B) new firms enter the industry so that the price falls and the economic profit eventually falls to zero.

Front 32

5) A monopolistically competitive firm and a monopoly are alike because both

Back 32

face downward sloping demand curves.
have marginal revenue curves that lie beneath their demand curves.

Front 33

14) Which of the following statements regarding the long run for a profit-maximizing monopolistically competitive firm is FALSE?
A) The firm is making zero economic profit.
B) The firm produces the quantity of output for which marginal revenue equals marginal cost.
C) The average total cost equals the price.
D) The firm produces the quantity at which the marginal revenue curve intersects the demand curve.

Back 33

D) The firm produces the quantity at which the marginal revenue curve intersects the demand curve.

Front 34

15) In the long run, a firm in monopolistic competition has its price equal to ________ and also has its price ________.

Back 34

C) average total cost; exceeds its marginal cost

Front 35

16) In the long-run, a firm in monopolistic competition produces at an output level where

Back 35

C) P = ATC and MR = MC.

Front 36

17) Which of the following is true regarding the long run for a firm in monopolistic competition?
A) P = MC = ATC
B) P = MC = MR
C) ATC = MC = MR
D) P = ATC

Back 36

D) P = ATC

Front 37

18) If firms monopolistically competitive firms are making an economic profit, as new firms enter the market, each of the existing firms' demand curve shifts ________, the marginal curve shifts ________, and the profit-maximizing quantity ________.

Back 37

A) leftward; leftward; decreases

Front 38

19) If in monopolistic competition in the short run, firms make ________ profits, then in the long run, new firms will enter the market. The ________ each individual firm's product will ________. In the new long-run equilibrium firms will make ________ profit.

Back 38

A) economic; demand for; decrease; zero economic

Front 39

20) A market structure in which a small number of firms compete is called ________.

Back 39

C) an oligopoly

Front 40

21) Suppose that all pizza companies have the same costs and the minimum average total cost is $12 per pizza. The pizza companies have an efficient scale of 100 pies per night. In the small town of Coatsville, at the price of $12 per pizza the quantity demanded is approximately 300 pizzas per night. This market, therefore, can best be characterized as

Back 40

D) a natural oligopoly.

Front 41

23) Of the following, the best example of oligopoly is

Back 41

C) the cigarette industry.

Front 42

24) Game theory is distinctive in that its elements are

Back 42

C) rules, strategies, payoffs, and outcomes.

Front 43

25) Two software firms have developed an identical new software application. They are debating whether to give the new application away free and then sell add-ons or sell the application at $30 a copy. The payoff matrix is above and the payoffs are profits in millions of dollars. What is the Nash equilibrium of the game?
A) Both Firm 1 and 2 will sell the software application at $30 a copy.
B) Both Firm 1 and 2 will give the software application away free.
C) Firm 1 will give the application away free and Firm 2 will sell it at $30.
D) There is no Nash equilibrium to this game.

Back 43

none

Front 44

26) Disney and Fox must decide when to release their next films. The revenues received by each studio depend in part on when the other studio releases its film. Each studio can release its film at Thanksgiving or at Christmas. The revenues received by each studio, in millions of dollars, are depicted in the payoff matrix above. Which of the following statements correctly describes Fox's strategy given what Disney's release choice may be?
A) If Disney chooses a Thanksgiving release, Fox should choose a Christmas release.
B) If Disney chooses a Christmas release, Fox should choose a Thanksgiving release.
C) Fox should release on Christmas regardless of what Disney does.
D) Both answers A and B are correct.

Back 44

C) Fox should release on Christmas regardless of what Disney does.

Front 45

27) In what type of market is a cartel possible?

Back 45

*A) a market in which there are only a few firms and barriers to entry exist

Front 46

28) Two firms, Alpha and Beta, produce identical computer hard drives. They have identical costs, and the hard drives they produce are identical. The industry is a natural duopoly. Alpha and Beta enter into a collusive agreement, according to which they split the market equally. If both firms cheat on the agreement so the market is the same as a competitive market,

Back 46

B) each firm will make zero economic profit.

Front 47

32) If McDonald's, Wendy's, and Burger King agree with each other not to sell hamburgers for less than $2.95 apiece, all three could be found guilty of
A) an interlocking directorship under the Clayton Act.
B) price fixing under the Sherman Act.
C) a deceptive business practice under the Clayton Act.
D) None of the above answers is correct.

Back 47

B) price fixing under the Sherman Act.

Front 48

33) Kellogg's and General Mills are two of the dominant breakfast cereal manufactures in the U.S. Each firm can either sign or not sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. Both Kellogg's and General Mills have signed athletes in 2008, Michael Phelps and Nastia Liukin, respectively. What does this suggest about the outcome of the oligopoly game?
A) The highest profits are when both companies sign.
B) The best outcome, in terms of profit, is where both companies sign.
C) The Nash equilibrium must be that both companies sign.
D) The Nash equilibrium must be that both companies sign and this always leads to the highest profits.

Back 48

C) The Nash equilibrium must be that both companies sign.

Front 49

34) In 2008, a former Intel engineer has been charged with stealing trade secrets worth $1 billion. Intel owns 80 percent of the worldwide market for microprocessors, AMD has the rest. Conducting R&D is very expensive so suppose that each of these firms can either steal R&D or develop their own R&D. If both firms develop their own R&D, economic profit will be $50 million each. If one company steals R&D, that firm earns $100 million in economic profit while the other firm earns $10 million. If both firms steal R&D, each firm breaks even. What is the outcome of this game?
A) Both firms will conduct R&D.
B) Both firms will steal R&D.
C) The outcome will be a dominant strategy equilibrium.
D) Only one firm will conduct R&D, but we cannot predict which firm will conduct R&D.

Back 49

D) Only one firm will conduct R&D, but we cannot predict which firm will conduct R&D.

Front 50

35) The EU's antitrust chief in November 2008 fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel. What are the economic justifications of making price fixing illegal?
A) Consumers suffer because of decreased consumer surplus and the outcome is inefficient because of deadweight loss.
B) An oligopoly cartel can maximize profit and behave like a natural monopoly.
C) The cartel increases quantity supplied in the market causing a shortage.
D) The cartel increases quantity supplied in the market causing a surplus and therefore harming other producers.

Back 50

A) Consumers suffer because of decreased consumer surplus and the outcome is inefficient because of deadweight loss.

Front 51

36) A good or service or a resource is nonexcludable if
A) it is possible to prevent someone from enjoying its benefits.
B) it is not possible to prevent someone from benefiting from it.
C) its use by one person decreases the quantity available for someone else.
D) its use by one person does not decrease the quantity available for someone else.

Back 51

B) it is not possible to prevent someone from benefiting from it.

Front 52

37) Which of the following is the BEST example of a public good?
A) a can of Mountain Dew
B) fish in the ocean
C) cable television
D) national defense

Back 52

D) national defense

Front 53

38) Free riding
A) is possible if the consumption of a good is characterized by excludability.
B) is possible if the consumption of a good is characterized by nonexcludability.
C) is characteristic of private goods.
D) occurs when consumers pay too much for services provided by government.

Back 53

B) is possible if the consumption of a good is characterized by nonexcludability.

Front 54

39) The construction of the economy's marginal social benefit curve for a public good reflects the fact that
A) all the individuals can consume the same unit of the good.
B) more than one supplier can provide the good.
C) the same unit of the good cannot be simultaneously shared by more than one person at a time.
D) the government can supply a public good at a lower cost than can a private supplier.

Back 54

A) all the individuals can consume the same unit of the good.

Front 55

40) The economy's marginal benefit curve for a public good is found by ________ for all individuals.
A) vertically summing the marginal benefit curves
B) vertically summing the total benefit curves
C) horizontally summing the total benefit curves
D) horizontally summing the marginal benefit curves

Back 55

A) vertically summing the marginal benefit curves

Front 56

m


41) The difference between the marginal social cost and the marginal private cost equals the
A) cost of producing an additional unit of a good.
B) marginal external benefit.
C) marginal external cost.
D) marginal private benefit.

Back 56

C) marginal external cost.

Front 57

42) Marginal social cost is the
A) difference between the marginal social benefit and the marginal private cost.
B) sum of the marginal private benefit and the marginal private cost.
C) difference between the marginal external cost and the marginal private cost.
D) sum of the marginal external cost and the marginal private cost.

Back 57

D) sum of the marginal external cost and the marginal private cost.

Front 58

43) The marginal social cost, MSC, of producing a good or service equals
A) MC + MB.
B) MB + marginal external cost.
C) MB + marginal external benefit.
D) MC + marginal external cost.

Back 58

D) MC + marginal external cost.

Front 59

44) For a good with an external cost, the supply curve
A) represents the various quantities people can buy.
B) is the same as the marginal private cost curve.
C) is the same as the marginal social cost curve.
D) is the same as the marginal external cost curve.

Back 59

B) is the same as the marginal private cost curve.

Front 60

45) Consider an industry that produces an output Q with marginal private cost (MC) and marginal social cost (MSC) as given in the table:

Q MC MSC
1 2 4
2 4 7
3 6 10
4 8 13
5 10 16
Which of the following is true?
A) The production of each additional unit results in a larger marginal external cost.
B) The production of each additional unit results in the same marginal external cost.
C) The production of each additional unit results in a lower marginal external cost.
D) There are no marginal external costs associated with the production of this good.

Back 60

A) The production of each additional unit results in a larger marginal external cost.

Front 61

46) When production of a good results in an external cost, the unregulated competitive market equilibrium is inefficient because ________.
A) MSC = MC
B) MSC = MSB
C) MSC > MSB
D) MSC < MSB

Back 61

C) MSC > MSB

Front 62

47) Generating electricity creates air pollution. This industry, if left unregulated, will produce at an inefficient market equilibrium because
A) there is a deadweight loss.
B) supply is not equal to demand.
C) too little output is produced.
D) the marginal social benefit is greater than the marginal social cost.

Back 62

A) there is a deadweight loss.

Front 63

48) The income effect of a higher wage rate results in a
I. higher income as people work more.
II. person choosing to decrease work hours as income increases.
III. backward-bending labor supply curve.
A) I and II
B) II and III
C) I and III
D) II only

Back 63

B) II and III

Front 64

in long run, firms in momo comp opperate with

Back 64

excess capacity

positive markup

both drivien by doward-sloping demand