Ch. 11,12,13 &14 Microeconomics

When the government makes a firm the exclusive legal provider of a good or​ service, it grants the firm

A a network externality.
B. a copyright.
C. a quota.
D a public franchise.

A merger between the Ford Motor Company and General Motors would be an example of a
A.
vertical merger.
B.
conglomerate merger.
C.
horizontal merger.
.D.
trust.

To be a natural monopoly a firm must
A.
control a key resource input.
B.
have economies of scale that are so large that it can supply the entire market at a lower cost than two or more firms.
.C.
be in a​ government-regulated market.
D.
have significant network externalities.

Consider the following​ characteristics:
a. a market structure with barriers to entry
b. demand curves that are easily identified
c. firm cannot make zero profits in the long run
d. firm can reap​ long-run profits.

Which of the characteristics in the list above is shared by an oligopolist and a​ monopolist?

​Peet's Coffee and Teas produces some flavorful varieties of​ Peet's brand coffee. Is​ Peet's a​ monopoly?
A.
​Yes, there are no substitutes to​ Peet's coffee.
B.
​No, Peet's is not a monopoly because there are many branches of​ Peet's.
C.
​No, although​ Peet's coffee is a unique​ product, there are many different brands of coffee that are very close substitutes.
.D.
​Yes, Peet's is the only supplier of​ Peet's coffee in a market where there are high barriers to entry.

Which of the following is a characteristic shared by a perfectly competitive firm and a​ monopoly?
A.
Each sets a price for its product that will maximize its revenue.
B.
Each maximizes profits by producing a quantity for which price equals marginal cost.
C.
Each must lower its price to sell more output.
D.
Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

One reason patent protection is vitally important to pharmaceutical firms is
A.
that taxes on profits from drugs are very​ high; profits from patent protection enable firms to pay these taxes.
B.
the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process.
.C.
successful new drugs are not profitable. If firms are not granted patents many would go out of business and health care would be severely diminished.
D.
the high salaries pharmaceutical firms pay to scientists and doctors make their labor costs higher than for any other business. Profits from patents are needed to pay these labor costs.

A local electricityminus−generating company has a monopoly that is protected by an entry barrier that takes the form of
A.
economies of scale.
B.
control of a key raw material.
C.
a perfectly inelastic demand curve.
D.
network externalities.

Baxter​ International, a manufacturer of hospital​ supplies, acquired American Hospital​ Supply, a distributor of hospital supplies. This is an example of
A.
a conglomerate merger.
B.
a horizontal merger.
C.
a twominus−dimensional merger.
D.
a vertical merger.

Collusion is
A.
common among monopoly firms.
B.
an agreement among firms to charge the same price or otherwise not to compete.
\C.
necessary for firms to raise money by borrowing from investors or from banks in order to fund research and development required to develop new products.
D.
legal under U.S. antitrust laws if the intent is to increase competition.

Compared to a monopolistic​ competitor, a monopolist faces
A.
a more elastic demand curve.
B.
a demand curve that has a price elasticity coefficient of zero.
C.
a more inelastic demand curve.
D.
a more elastic demand curve at higher prices and a more inelastic demand curve at lower prices.

Why does a monopoly cause a deadweight​ loss?
A.
because it does not produce some output for which demand exceeds supply
B.
because it increases producer surplus at the expense of consumer surplus
C.
because it does not produce some output for which marginal benefit exceeds marginal cost
.D.
because it appropriates a portion of consumer surplus for itself

A monopoly is characterized by all of the following except
A.
there are only a few​ sellers, each selling a unique product.
.B.
entry barriers are high.
C.
the firm has market power.
D.
there are no close substitutes to the​ firm's product.

A price maker is
A.
a firm that is able to sell any quantity at the highest possible price.
B.
a consumer who participates in an auction where she announces her willingness to pay for a product.
C.
a firm that has some control over the price of the product it sells.
D.
a person who actively seeks out the best price for a product that he or she wishes to buy.

​Ordinarily, governments attempt to promote competition in markets. Why do governments use patents to block entry into some markets when this prohibits​ competition?
A.
Politicians sometimes succumb to pressure from lobbyists to grant favors to businesses for political reasons.
B.
Patents are an important source of government revenue.
C.
Patents are justified because they are an important means for creating network externalities.
D.
Patents encourage firms to spend money on research necessary to create new products.

A monopoly is a seller of a product
A.
without a wellminus−defined demand curve.
B.
with many substitutes.
C.
without a close substitute.
D.
with a perfectly inelastic demand.

In Walnut​ Creek, California, there are three very popular​ supermarkets: Safeway, Whole​ Foods, and​ Lunardi's. While Safeway remains open twentyminus−four hours a​ day; Whole Foods and​ Lunardi's close at 9 pm. which of the following statements is​ true?
A.
Safeway probably has a higher markup to compensate for its higher cost of production.
B.
Safeway is a monopoly all day because it produces a service that has no close substitutes.
C.
Safeway can ignore the pricing decisions of the other two supermarkets.
D.
Safeway has a monopoly at midnight but not during the day.

Longminus−run equilibrium under monopolistic competition and perfect competition is similar in that
A.
price equals marginal revenue.
B.
firms break even.
.C.
firms produce at the minimum point of their average cost curves.
D.
price equals marginal cost.

A monopolistically competitive firm will
A.
produce an output level that is productively and allocatively efficient.
B.
always produce at the minimum efficient scale of production.
C.
charge the same price as its competitors do.
D.
have some control over its price because its product is differentiated.

In the long​ run, firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic​ profits, but unlike perfectly competitive firms in the long​ run, monopolistically competitive firms
A.
charge a price that is equal to average total cost.
B.
charge a price that is equal to marginal cost.
C.
do not produce at minimum average total cost.
D.
charge a price that is greater than average revenue.

A monopolistically competitive firm that is profitable in the short run will face competition that will eventually eliminate the​ firm's profits in the long run. But the firm can stave off competition and continue to earn economic profits if
A.
it can lobby the government to establish a price floor for its product.
B.
it can move to another country where there is less competition.
C.
it can find new ways to differentiate its product.
Your answer is correct.D.
it can successfully sue its competitors for copyright infringement.

Which of the following firms is not an example of a monopolistically competitive​ market?
A.
Makers of​ women's clothing
.B.
Automobile producers
.C.
Supermarkets
D.
Gas stations

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive​ firm?
A.
The perfectly competitive​ firm's marginal revenue and demand curves are the​ same; the marginal revenue curve of a monopolistically competitive firm lies below its demand curve.
.B.
The marginal revenue curve of a monopolistically competitive firm lies below its demand​ curve; the marginal revenue curve of a perfectly competitive firm lies above its demand curve.
C.
The perfectly competitive​ firm's marginal revenue and demand curves are the​ same; the marginal revenue curve of a monopolistically competitive firm lies above its demand curve.
D.
The monopolistically competitive​ firm's marginal revenue and demand curves are the​ same; the marginal revenue curve of a perfectly competitive firm lies below its demand curve.

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until
A.
the​ firm's demand curve is tangent to its average total cost curve.
B.
the original firm is driven into bankruptcy.
C.
the​ firm's demand curve is perfectly elastic.
D.
the firm exits the market.

Which of the following is not a characteristic of monopolistic​ competition?
A.
There are low barriers to entry.
B.
The products sold by all firms are identical.
This is the correct answer.C.
There are many buyers and sellers.
Your answer is not correct.D.
Average revenue is equal to price.

Is a monopolistically competitive firm productively​ efficient?
A.
​Yes, because it produces where marginal cost equals marginal revenue.
B.
​No, because it does not produce at minimum average total cost.
This is the correct answer.C.
​Yes, because price equals average total costs.
D.
​No, because price is greater than marginal cost.

Both monopolistically competitive firms and perfectly competitive firms maximize profits
A.
by producing where price equals average variable cost.
B.
by producing where price equals average total cost.
C.
by producing where marginal revenue equals average revenue.
D.
by producing where marginal revenue equals marginal cost.

Only one of the following statements is correct. The statements compare perfectly competitive​ (PC) markets and monopolistically competitive​ (MC) markets. Which statement is correct​?
A.
Productive efficiency and allocative efficiency are both achieved in PC markets. Neither is achieved in MC markets.
Your answer is correct.B.
Allocative efficiency is achieved only in PC markets. Productive efficiency is achieved only in MC markets.
C.
Productive efficiency is achieved in both PC and MC markets. Allocative efficiency is achieved only in MC markets.
D.
Allocative efficiency is achieved in both PC and MC markets. Productive efficiency is achieved only in PC markets.

In the long​ run, what happens to the demand curve facing a monopolistically competitive firm that is earning short run​ profits?
A.
The demand curve will shift to the right and became less elastic throughout the relevant range of prices.
B.
The demand curve will shift to the right and became more elastic throughout the relevant range of prices.
C.
The demand curve will shift to the left and became less elastic throughout the relevant range of prices.
D.
The demand curve will shift to the left and became more elastic throughout the relevant range of prices.

Because the monopolistically competitive firm faces a​ ________ demand curve for its​ product, it​ ________ the price of its output.
A.
downwardminus−​sloping; cannot influence
B.
​horizontal; can influence
C.
downwardminus−​sloping; can influence
D.
​horizontal; cannot influence

What is the dominant strategy in the​ prisoners' dilemma?
A.
Each prisoner confesses because this is the rational action to pursue.
This is the correct answer.B.
Do nothing in the hope that the other prisoner will also do nothing.
C.
Do not confess because the other prisoner will most likely confess.
D.
There is no dominant strategy.

Which of the following explains why two​ firms, Apex and​ Bongo, would engage in implicit​ collusion, rather than explicit​ collusion?
A.
Implicit collusion always has an enforcement mechanism that forces both firms to​ collude; explicit collusion does not have an enforcement mechanism.
B.
Implicit collusion allows Apex to increase its profits at the expense of Bongo without Bongo knowing that collusion has​ occurred; if Apex engages in explicit​ collusion, Bongo will realize collusion has taken place and retaliate against Apex.
C.
Implicit collusion is less costly to both firms than explicit​ collusion; therefore, profits will be greater for both firms if they engage in implicit collusion.
D.
explicit collusion is​ illegal; if the managers of Apex and Bongo engage in implicit collusion they may be within the law.

The Organization of Petroleum Exporting Countries​ (OPEC) controls about 75 percent of the​ world's proven oil reserves. Economists refer to OPEC as a cartel because
A.
OPEC is a​ monopoly, but it is located outside of the boundaries of any one country. This is the definition of a cartel.
B.
this is the term used for an oligopoly that is controlled by national governments rather than private firms.
C.
it is a group of firms that collude to restrict output to increase prices and profits.
D.
this is the term economists use to describe an oligopoly that sells a standardized​ product, such as​ oil, rather than a differentiated​ product, such as automobiles.

Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its​ competitor?
A.
The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion.
B.
The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower​ price, the rival firm will retaliate by doing the same.
.C.
The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.
D.
The offer to match prices is a way of deterring entry by other large​ firms, thereby keeping the market share of the existing firms intact.

Oligopolies exist and do not attract new rivals because
A.
the firms keep profits and prices so low that no rivals are attracted.
B.
of competition.
C.
of barriers to entry.
.D.
there can be no product differentiation.

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called
A.
Nash equilibrium.
B.
dominant strategy equilibrium.
C.
the​ prisoners' dilemma.
D.
game theory.

In an oligopoly market
A.
individual firms pay no attention to the behavior of other firms.
B.
advertising of one firm has no effect on all other firms.
C.
one​ firm's pricing decision affects all the other firms.
.D.
the pricing decisions of all other firms have no effect on an individual firm.

What is a​ prisoners' dilemma?
A.
a game in which players collude to outfox authorities
B.
a game in which prisoners are stumped because they cannot communicate with each other
C.
a game in which players act in​ rational, selfminus−interested ways that leave everyone worse off
.D.
a game that involves no dominant strategies

We can draw demand curves for firms in perfectly competitive and monopolistically competitive​ industries, but not for oligopoly firms. The reason for this is
A.
perfectly competitive and monopolistically competitive firms sell standardized products. Oligopoly firms sell differentiated products.
B.
we can assume that the prices charged by perfectly competitive and monopolistically competitive firms have no impact on rival firms. For oligopoly this assumption is unrealistic.
.C.
that perfectly competitive and monopolistically competitive firms are price takers. Oligopoly firms are price makers.
D.
there are no barriers to entry in perfectly competitive and monopolistically competitive industries. There are high barriers to entry in oligopoly industries.

In​ economics, the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called
A.
profit analysis.
B.
game theory.
This is the correct answer.C.
decision theory.
D.
market structure analysis.

Which of the following is not a characteristic of​ oligopoly?
A.
low barriers to entry
This is the correct answer.B.
interdependent firms
C.
the ability to influence price
D.
a small number of firms

A fourminus−firm concentration ratio measures
A.
the fraction of an​ industry's sales accounted for by the four largest firms.
This is the correct answer.B.
how the four largest firms became so concentrated.
C.
the fraction of employment of the four largest firms in an industry.
D.
the production of any four firms in an industry.

What is an​ oligopoly?
An oligopoly is a market structure
A.
where only one firm buys an input in a factor market.
B.
where many sellers compete by selling an identical product.
C.
where many sellers compete by selling differentiated products.
D.
where a small number of interdependent firms compete.
.E.
where only one firm supplies the entire market.

Three examples of oligopolies in the United States are industries that produce or sell
A.
groceries in supermarketsgroceries in supermarkets​, ​toys, and aircraft.
B.
applesapples​, pharmaceutical​ drugs, and beer.
C.
DVDsDVDs​, college​ textbooks, and breakfast cereal.
D.
first minus class mail deliveryfirst−class mail delivery​, dog and cat​ food, and pharmaceutical drugs.
E.
computerscomputers​, athletic​ footware, and cigarettes.

What are the most important barriers to​ entry?
The most important barriers to entry are
A.
economies of​ scale, ownership of a key​ input, and government imposed barriers.
.B.
economies of​ scale, lack of quotasquotas​, and ownership of a key input.
C.
ownership of a key​ input, lack of tariffstariffs​, and economies of scale.
D.
ownership of a key​ input, occupational licensingoccupational licensing​, and diseconomies of scale.
E.
economies of​ scale, lack of network​ externalities, and occupational licensingoccupational licensing.

What do barriers to entry have to do with the extent of​ competition, or lack​ thereof, in an​ industry?
Without barriers to​ entry,
A.
new firms will enter industries exhibiting diseconomies of scalediseconomies of scale.
B.
new firms will enter industries where firms are earning accounting profits.
C.
new firms will enter industries where firms are earning economic profits.
Your answer is correct.D.
existing firms will agree to form a cartel and colludeform a cartel and collude.
E.
existing firms will experience price leadership.

What is the difference between explicit collusion and implicit​ collusion?
Unlike explicit​ collusion, implicit collusion
A.
is where firms meet and agree to not competenot compete without appointing a price leader.
B.
is where firms meet and agree to charge the same pricecharge the same price without employing retaliation strategies.
C.
is where firms signal to each other without actually meeting and agreeing to not competenot compete.
D.
is where firms meet to discuss not competingnot competing without actually reaching an agreement.
E.
is illegal.

How does collusion LOADING... make firms better​ off?
A.
The firms can act as a single​ entity, like a monopoly.
B.
The firms can charge lower prices and sell a smaller quantity and still increase profits.
C.
The firms can charge lower​ prices, but sell a greater quantity and thus earn higher revenues.
D.
Both A and B.
E.
Both A and C.