question
A monopolist will maximize profits by:
answer
producing the output where marginal revenue equals marginal cost, just as a perfectly competitive firm will.
question
Economists do not think price discrimination is unfair because
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more buyers are able to purchase the good with price discrimination, some buyers pay a lower price than if there were a single price, and sellers earn higher profit than if there were a single price.
question
Which of the following firms best fits the definition of a monopoly?
answer
Local electric utility
question
A monopoly firm can sell its fourth unit of output for a price of $250. To sell more than five units, it must expect to receive a price:
answer
less than $250.
question
Which of the following distinguishes a natural monopoly from monopoly caused by ownership of a vital resource?
answer
The natural monopoly has a downward-sloping long-run average cost curve as opposed to a U-shaped long-run average cost curve.
question
Both a perfectly competitive firm and a monopolist:
answer
maximize profit by setting marginal cost equal to marginal revenue.
question
Which of the following is true under natural monopoly?
answer
Economies of scale exist.
question
Suppose that a study of changes in admission prices reveals that when the price of admission to the museum increases by 10%, adults reduce their ticket purchases by 10%, senior citizens reduce their ticket purchases by 20%, college students reduce their ticket purchases by 25%, and children reduce their ticket purchases by 30%. If the cost of having a person visit the museum is the same regardless of whether the person is an adult, senior citizen, college student, or child, which of the following pricing schemes is the most likely to be used by the museum and why?
answer
$8 for children, $10 for college students, $12 for senior citizens, and $15 for adults because the museum can earn higher profits by charging the highest price to those with the least elastic demand and the lowest price to those with the most elastic demand.
question
Suppose Ford, GM, and Dodge make the majority of pick-up trucks sold in the United States If they all sell for approximately the same price, and Ford offers a $2,000 rebate on new truck sales, what can Ford expect to see?
answer
an immediate response by GM and Dodge
question
Cartel members have an incentive to cheat on the cartel because:
answer
each member's MR is not equal to the cartel's MC.
question
If all firms in the industry are the same as the monopolistic competitive firm shown in this Exhibit 9-1, firms in the long run will:
answer
experience competition from new firms that enter the industry.
question
Nonprice competition in monopolistically competitive markets results in
answer
rivalry among competing firms based on the characteristics that differentiate their products.
question
The monopolistic competition market structure is characterized by:
answer
many firms and differentiated products.
question
If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 9-2, we would expect that in the long run:
answer
firms in the industry earn zero economic profits.
question
As presented in Exhibit 9-3, the long-run profit-maximizing output for the monopolistic competitive firm is:
answer
400 units per week.
question
Which of the following is not true of a monopolistically competitive firm?
answer
The firm will produce an efficient quantity where average total cost is minimized.
question
Suppose costs are identical for the two firms in Exhibit 9-7. If both firms assume the other will compete and charge a lower price, equilibrium will be established by:
answer
Camel charging the low price and Marlboro charging the low price.
question
The two tendencies of a firm in a cartel are the incentive to:
answer
cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit.
question
Which of the following does not represent an arbitrage transaction?
answer
A boat manufacturer buys the electrical components for its boats from the lowest cost supplier and then sells the boats to consumers.
question
Suppose a monopolist and a perfectly competitive firm have the same cost curves. The monopolistic firm would:
answer
charge a higher price than the perfectly competitive firm.
question
Which of the following statements accurately describes a difference between a firm that is a monopolist and one that is a competitive price taker?
answer
Marginal revenue and market price are equal for the competitive price taker but not for the monopolist.
question
A monopolist earning economic profit in the short run determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?
answer
Raise price and lower output.
question
At the level of output where the marginal cost and marginal revenue curves intersect, two firms demand curves pass above their average total cost curve. One firms is a monopoly and the other is perfectly competitive. Which statement is true for both firms?
answer
The firms are making an economic profit.
question
At any point where a monopolist's marginal revenue is positive, the downward-sloping straight-line demand curve is:
answer
elastic but not perfectly elastic, and a perfectly competitive firm's demand curve is perfectly elastic.
question
The act of buying a commodity in one market at a lower price and selling it in another market at a higher price is known as:
answer
arbitrage.
question
When the monopolist is maximizing total profit in Exhibit 8-6, the average total cost of producing that output level is:
answer
$8
question
Suppose both a monopolist and a perfectly competitive firm charge a price corresponding to the quantity at the intersection of the marginal cost and marginal revenue curves. If this price is between each firm's average variable cost and average total cost curves,
answer
both firms will continue to operate in the short run.
question
Suppose both a monopolist and a perfectly competitive firm are producing in their respective markets at a point where marginal cost is $8 and marginal revenue is $10. What should the profit-maximizing firms do?
answer
Both the monopolist and the perfectly competitive firm should increase output until MC = MR.
question
As presented in Exhibit 9-1, the short-run profit-maximizing output for the monopolistic competitive firm is:
answer
400 units per day
question
Because a monopolistically competitive market is characterized by
answer
many small sellers selling a differentiated product, each seller has some influence over its own price.
question
Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:
answer
this producer is losing $2,000 a week.
question
Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?
answer
Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero.
question
Because an oligopoly is characterized by
answer
few large sellers, each seller has some influence over the market price.
question
A market situation where a small number of sellers dominate the entire industry is called:
answer
oligopoly.
question
The monopolistic competition market structure is characterized by:
answer
many firms and differentiated products.
question
Some economists argue that monopolistically competitive markets are inefficient because:
answer
firms do not produce the output rate that would minimize their average total cost.
question
When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:
answer
mutual interdependence.
question
In order to make oil profits as large as possible, OPEC meets to set oil production quotas for its members. OPEC is best classified as a:
answer
cartel.
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