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How does a monopoly differ from a perfectly competitive industry with the same costs?
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The monopoly produces a smaller quantity.
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A monopolist and a perfectly competitive firm both
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maximize profit by producing the quantity at which marginal revenue equals marginal cost.
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A price cut will lead to an increase in total revenue if the
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quantity effect is larger than the price effect.
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Which of the following statements is true of a monopoly as compared to a perfectly competitive market with the same costs?
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Consumer surplus is smaller.
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Which of the following is true of a natural monopoly?
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ATC is lower if there is a single firm in the market.
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Which of the following government actions is the most common for a natural monopoly in the United States?
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use price regulation
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Where the average total cost curve for a natural monopoly crosses the demand curve,
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the marginal cost curve is below the average total cost curve.
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Which of the following is most likely to be higher for a regulated natural monopoly than for an unregulated natural monopoly?
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quantity
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A monopoly typically causes deadweight loss due to
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an inefficiently low quantity of output.
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In order to allow a natural monopoly to continue operations in the long run, the regulated price must be at least as high as the
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average total cost where the average total cost curve meets the demand curve.
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With perfect price discrimination, consumer surplus
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equals zero.
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Which of the following characteristics is necessary in order for a firm to price-discriminate?
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some control over price
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Price discrimination
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can lead to increased efficiency in the market.
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A price-discriminating monopolist will charge a higher price to consumers with
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a more inelastic demand.
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Which of the following is a common practice of single-price monopolists?
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operating where marginal revenue equals marginal cost
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In order to carry out perfect price discrimination, a firm must know each
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customer's willingness to pay.
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A perfectly price-discriminating monopolist
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achieves allocative efficiency.
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When firms cooperate to raise their joint profits, they are necessarily
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colluding
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Within a group of firms, if the actions of the firms affect each other's profits, the firms are necessarily
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interdependent
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An agreement among several producers to restrict output and increase profit is necessary for
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a cartel
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Oligopolists are tempted to produce more than the quantity that would maximize industry profits because when they increase output,
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the price effect is spread across multiple firms.
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Which of the following will make it easier for firms in an industry to maintain positive economic profit?
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a small number of firms in the industry
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Oligopolistic firms that engage in direct price competition will stop undercutting each other's prices when the price reaches the
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price a perfectly competitive firm would charge.
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In the United States, price-fixing is
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illegal.
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Each player has an incentive to choose an action that, when both players choose it, makes them both worse off than if neither had chosen it. This situation describes
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the prisoners' dilemma.
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Which of the following is true of every Nash equilibrium?
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Neither player wants to independently change his or her strategy.
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A situation in which each player in a game chooses the action that maximizes his or her payoff, given the actions of the other players and ignoring the effects of his or her action on the payoffs received by others, is known as a
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Nash equilibrium.
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Based on the payoff matrix provided, Justin will
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confess whether or not Richard confessed.
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In the context of the Richard and Justin story in the Module, suppose that Justin discovers Richard's action (confess or don't confess) before choosing his own action.
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Neither Richard nor Justin has a dominant strategy.
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Relative to the Nash equilibrium outcome in the classic prisoners' dilemma game, the opportunity to successfully cooperate would
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lead both players to change their strategies.
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Which of the following is necessarily true if both players have a dominant strategy in a game?
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There is a dominant strategy equilibrium that is also a Nash equilibrium.
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Having which of the following makes it easier for oligopolies to coordinate on raising prices?
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identical perceptions of fairness
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If the bike shops in Cycle City do not have a formal agreement on pricing, but they increase their profits by adopting the prices of a price leader, these firms are necessarily participating in
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tacit collusion
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When was the first federal legislation against cartels passed?
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1890
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Antitrust policy is designed to
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prevent oligopolists from behaving like monopolists.
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Oligopolists engage in tacit collusion in order to
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raise prices
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When a firm considers how its behavior will affect the future actions of its competitors, it necessarily engages in
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strategic behavior.
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Firms successfully engaged in tacit collusion are unlikely to
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engage in a price war.
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Which of the following necessarily exists for a monopolistic competitor in the short run?
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competition
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Which of the following is a characteristic of monopolistic competition?
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many sellers
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Which of the following necessarily exists for a monopolistic competitor in the long run?
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excess capacity
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Which of the following best describes a monopolistic competitor's demand curve?
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downward-sloping
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The long-run outcome in a monopolistically competitive industry results in
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a trade-off between higher average total cost and more product diversity.
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Which of the following is generally true for a firm in a monopolistically competitive industry but not for a monopolist?
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The firm's ATC curve will be tangent to its demand curve in the long run.
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Which of the following will necessarily eliminate profits in a monopolistically competitive industry in the long run?
answer
the entry of new firms