ECON Exam 3 HW 8-10 - Assignment Essays

question

A very large number of small sellers who sell identical products imply

answer

the inability of one seller to influence price.

question

Both individual buyers and sellers in perfect competition

answer

have to take the market price as a given.

question

Both buyers and sellers are price takers in a perfectly competitive market because

answer

each buyer and seller is too small relative to others to independently affect the market price.

question

The demand curve for each seller's product in perfect competition is horizontal at the market price because

answer

each seller is too small to affect market price.

question

An individual seller in perfect competition will not sell at a price lower than the market price because

answer

the seller can sell any quantity she wants at the prevailing market price.

question

In a perfectly competitive market the term "price taker" applies to

answer

sellers and buyers.

question

If the market price is $25, the average revenue of selling five units is

answer

$25.

question

Refer to Figure 12-1. If the firm is producing 700 units

answer

it should cut back its output to maximize profit.

question

Refer to Figure 12-1. If the firm is producing 200 units

answer

it should increase its output to maximize profit.

question

If a perfectly competitive firm's price is above its average total cost, the firm

answer

is earning a profit.

question

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is

Group of answer choices

answer

180.

question

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?

Group of answer choices

answer

loss of $1,080

question

A perfectly competitive firm earns a profit when price is

answer

above minimum average total cost.

question

Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. Refer to Figure 12-5. If the market price is $20, what is the firm's profit-maximizing output?

Group of answer choices

answer

1,350 units

question

Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. Refer to Figure 12-5. The firm's manager suggests that the firm's goal should be to maximize average profit. If the firm does this, what is the amount of profit that it will earn?

Group of answer choices

answer

$6,600

question

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

answer

should shut down.

question

A perfectly competitive firm's supply curve is its

answer

marginal cost curve above its minimum average variable cost.

question

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell

answer

nothing at all; the firm shuts down.

question

In the short run, a firm that is operating at a loss has two options. These options are

answer

to shut down temporarily or continue to produce.

question

If a firm shuts down it

answer

will suffer a loss equal to its fixed costs.

question

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm

answer

should stop production by shutting down temporarily.

question

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

answer

new firms are attracted to the industry.

question

In the long run, a perfectly competitive market will

answer

supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.

question

Refer to Figure 12-3. If the firm is producing 500 units, what is the amount of its profit or loss?

answer

There is insufficient information to answer the question.

question

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's average profit?

answer

P - ATC

question

Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC) and marginal cost (MC). Refer to Table 12-3. What price (P) will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Group of answer choices

answer

P = $12.50; profit = $22.50

question

A firm will make a profit when

answer

P>ATC

question

A firm will break even when

answer

P = ATC

question

Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.Refer to Figure 12-9. At price P1, the firm would produce

Group of answer choices

answer

zero units.

question

Refer to Figure 12-10. The firm's short-run supply curve is its

answer

marginal cost curve from b and above.

question

The key characteristics of a monopolistically competitive market structure include

answer

many small (relative to the total market) sellers acting independently.

question

Which of the following characteristics is common to monopolistic competition and perfect competition?

answer

Entry barriers into the industry are low.

question

A major difference between monopolistic competition and perfect competition is

answer

that products are not standardized in monopolistic competition unlike in perfect competition.

question

The key characteristics of a monopolistically competitive market structure include

answer

sellers selling similar but differentiated products.

question

A monopolistically competitive firm faces a downward-sloping demand curve because

answer

of product differentiation.

question

If a firm faces a downward-sloping demand curve

answer

it must reduce its price to sell more units.

question

What is the profit-maximizing rule for a monopolistically competitive firm?

answer

to produce a quantity such that marginal revenue equals marginal cost

question

Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.

Refer to Table 13-2. What is Eco Energy's profit?

Group of answer choices

answer

$145

question

If price exceeds average variable cost but is less than average total cost, a firm

answer

should stay in business for a while longer until its fixed costs expire.

question

Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.

Refer to Table 13-3. What is the amount of the firm's loss at its optimal output level?

answer

$41

question

A monopolistically competitive industry that earns economic profits in the short run will

answer

experience the entry of new rival firms into the industry in the long run.

question

In the long run, if price is less than average cost

answer

there is an incentive for firms to exit the market.

question

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

answer

The demand curve will shift to the left and became more elastic.

question

Refer to Figure 13-11. The firm represented in the diagram

answer

makes zero economic profit.

question

Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?

answer

Production is at minimum average total cost.

question

For productive efficiency to hold

answer

average total cost is minimized in production.

question

For allocative efficiency to hold

answer

price must equal the marginal cost of the last unit produced.

question

Is a monopolistically competitive firm productively efficient?

answer

No, because it does not produce at minimum average total cost.

question

Brand management refers to

answer

the efforts to maintain the differentiation of a product over time.

question

Although advertising raises the price of a monopolistic competitor's product, it does confer a benefit to consumers. Which of the following is a benefit to consumers?

answer

Advertising could provide consumers with useful information about new products and enable them to comparison shop.

question

A firm that successfully differentiates its product or lowers its average cost of production creates

answer

value for its customers.

question

Monopolistically competitive firms can differentiate their products

answer

through marketing.

question

To maximize their profits and defend those profits from competitors, monopolistically competitive firms must

answer

differentiate their products.

question

Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?

answer

question

Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-4.What is the area that represents the total revenue made by the firm?

answer

0 P2 c Qa

question

A monopolistically competitive firm maximizes profit where

answer

price > marginal cost.

question

Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules. Refer to Table 13-2. What is the output (Q) that maximizes profit and what is the price (P) charged?

answer

P=$50; Q=6 cases

question

Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.Refer to Table 13-3. What are the profit-maximizing/loss-minimizing output level and price?

answer

Q=4; P=$17

question

Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing output?

answer

Q2 units

question

Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing price?

answer

question

An oligopolistic industry is characterized by all of the following except

answer

firms pursuing aggressive business strategies, independent of rivals' strategies.

question

An oligopoly firm is similar to a monopolistically competitive firm in that

answer

both firms have market power.

question

An oligopolist differs from a perfect competitor in that

answer

there are no entry barriers in perfect competition but there are entry barriers in oligopoly.

question

Which of the following is the best example of an oligopolistic industry?

answer

the pharmaceutical industry

question

A characteristic found only in oligopolies is

answer

interdependence of firms

question

Producing a differentiated product occurs in which of the following industries?

answer

monopolistic competition and oligopoly

question

Oligopolies are difficult to analyze because

answer

how firms respond to a price change by a rival is uncertain.

question

In an oligopoly market

answer

one firm's pricing decision affects all the other firms.

question

Marginal revenue for an oligopolist is

answer

difficult to determine because the firm's demand curve is typically unknown.

question

Which of the following is not a reason why government officials are willing to impose entry barriers?

answer

to promote an equitable distribution of income

question

A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called

answer

a business strategy.

question

What is the dominant strategy in the prisoner's dilemma?

answer

Each prisoner confesses because this is the rational action to pursue.

question

The prisoner's dilemma illustrates

answer

why firms will not cooperate if they behave strategically.

question

Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 14-1 shows the payoff matrix for this advertising game.Refer to Table 14-1. Is there a dominant strategy for Godrickporter and if so, what is it?

answer

Yes, Godrickporter should increase its advertising spending.

question

answer

No, its outcome depends on what Godrickporter does.

question

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

answer

advertising that it will match its rival's price

question

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

answer

because each rational player has a dominant strategy to play a certain way regardless of what other players do

question

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.Refer to Table 14-2. Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?

answer

Yes, the current situation is a Nash equilibrium.

question

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.Refer to Table 14-2. Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?

answer

to signal to each other that they intend to charge the high price

question

In a decision tree, the difference between a decision node and a terminal node is that

answer

at a decision node, a decision must be made while a terminal node shows the payoff.

question

Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche.Refer to Figure 14-1. Should Lexus lower its price in order to deter BMW's entry into the luxury hybrid automobile market?

answer

Yes, it will drive BMW out of the market.

question

Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche.Refer to Figure 14-1. If Lexus lowers its price, will this deter BMW from entering the market?

answer

Yes, because BMW stands to lose $100 million if it competes with Lexus.

question

In a subgame perfect equilibrium

answer

each player's strategy constitutes a Nash equilibrium at every subgame of the original game.

question

The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL). Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition. Figure 14-2 shows the decision tree for this game. Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, is a threat by Gigacom that it will provide DSL service if Gigacom provides cable service a credible threat?

answer

No, because Gigacom will lose $4.5 million in profits if it carries out its threat.

question

answer

Both offer DSL internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million.

question

The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL). Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition. Figure 14-2 shows the decision tree for this game. Refer to Figure 14-2. Now suppose that the government delays Xenophone's entry and Gigacom moves first, what is the likely outcome in the market?

answer

Both offer internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million.

question

In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use

answer

sequential games.

question

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

answer

threatening to raise prices.

question

Sequential games are used to analyze

answer

situations in which one firm acts and other firms respond.

question

Sequential games are often used to analyze which two types of business strategies?

answer

deterring entry by another firm and bargaining between firms

1 of 90

question

A very large number of small sellers who sell identical products imply

answer

the inability of one seller to influence price.

question

Both individual buyers and sellers in perfect competition

answer

have to take the market price as a given.

question

Both buyers and sellers are price takers in a perfectly competitive market because

answer

each buyer and seller is too small relative to others to independently affect the market price.

question

The demand curve for each seller's product in perfect competition is horizontal at the market price because

answer

each seller is too small to affect market price.

question

An individual seller in perfect competition will not sell at a price lower than the market price because

answer

the seller can sell any quantity she wants at the prevailing market price.

question

In a perfectly competitive market the term "price taker" applies to

answer

sellers and buyers.

question

If the market price is $25, the average revenue of selling five units is

answer

$25.

question

Refer to Figure 12-1. If the firm is producing 700 units

answer

it should cut back its output to maximize profit.

question

Refer to Figure 12-1. If the firm is producing 200 units

answer

it should increase its output to maximize profit.

question

If a perfectly competitive firm's price is above its average total cost, the firm

answer

is earning a profit.

question

Group of answer choices

answer

180.

question

Group of answer choices

answer

loss of $1,080

question

A perfectly competitive firm earns a profit when price is

answer

above minimum average total cost.

question

Group of answer choices

answer

1,350 units

question

Group of answer choices

answer

$6,600

question

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

answer

should shut down.

question

A perfectly competitive firm's supply curve is its

answer

marginal cost curve above its minimum average variable cost.

question

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell

answer

nothing at all; the firm shuts down.

question

In the short run, a firm that is operating at a loss has two options. These options are

answer

to shut down temporarily or continue to produce.

question

If a firm shuts down it

answer

will suffer a loss equal to its fixed costs.

question

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm

answer

should stop production by shutting down temporarily.

question

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

answer

new firms are attracted to the industry.

question

In the long run, a perfectly competitive market will

answer

supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.

question

Refer to Figure 12-3. If the firm is producing 500 units, what is the amount of its profit or loss?

answer

There is insufficient information to answer the question.

question

answer

P - ATC

question

Group of answer choices

answer

P = $12.50; profit = $22.50

question

A firm will make a profit when

answer

P>ATC

question

A firm will break even when

answer

P = ATC

question

Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.Refer to Figure 12-9. At price P1, the firm would produce

Group of answer choices

answer

zero units.

question

Refer to Figure 12-10. The firm's short-run supply curve is its

answer

marginal cost curve from b and above.

question

The key characteristics of a monopolistically competitive market structure include

answer

many small (relative to the total market) sellers acting independently.

question

Which of the following characteristics is common to monopolistic competition and perfect competition?

answer

Entry barriers into the industry are low.

question

A major difference between monopolistic competition and perfect competition is

answer

that products are not standardized in monopolistic competition unlike in perfect competition.

question

The key characteristics of a monopolistically competitive market structure include

answer

sellers selling similar but differentiated products.

question

A monopolistically competitive firm faces a downward-sloping demand curve because

answer

of product differentiation.

question

If a firm faces a downward-sloping demand curve

answer

it must reduce its price to sell more units.

question

What is the profit-maximizing rule for a monopolistically competitive firm?

answer

to produce a quantity such that marginal revenue equals marginal cost

question

Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.

Refer to Table 13-2. What is Eco Energy's profit?

Group of answer choices

answer

$145

question

If price exceeds average variable cost but is less than average total cost, a firm

answer

should stay in business for a while longer until its fixed costs expire.

question

Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.

Refer to Table 13-3. What is the amount of the firm's loss at its optimal output level?

answer

$41

question

A monopolistically competitive industry that earns economic profits in the short run will

answer

experience the entry of new rival firms into the industry in the long run.

question

In the long run, if price is less than average cost

answer

there is an incentive for firms to exit the market.

question

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

answer

The demand curve will shift to the left and became more elastic.

question

Refer to Figure 13-11. The firm represented in the diagram

answer

makes zero economic profit.

question

Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?

answer

Production is at minimum average total cost.

question

For productive efficiency to hold

answer

average total cost is minimized in production.

question

For allocative efficiency to hold

answer

price must equal the marginal cost of the last unit produced.

question

Is a monopolistically competitive firm productively efficient?

answer

No, because it does not produce at minimum average total cost.

question

Brand management refers to

answer

the efforts to maintain the differentiation of a product over time.

question

Although advertising raises the price of a monopolistic competitor's product, it does confer a benefit to consumers. Which of the following is a benefit to consumers?

answer

Advertising could provide consumers with useful information about new products and enable them to comparison shop.

question

A firm that successfully differentiates its product or lowers its average cost of production creates

answer

value for its customers.

question

Monopolistically competitive firms can differentiate their products

answer

through marketing.

question

To maximize their profits and defend those profits from competitors, monopolistically competitive firms must

answer

differentiate their products.

question

answer

question

answer

0 P2 c Qa

question

A monopolistically competitive firm maximizes profit where

answer

price > marginal cost.

question

answer

P=$50; Q=6 cases

question

Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.Refer to Table 13-3. What are the profit-maximizing/loss-minimizing output level and price?

answer

Q=4; P=$17

question

Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing output?

answer

Q2 units

question

Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing price?

answer

question

An oligopolistic industry is characterized by all of the following except

answer

firms pursuing aggressive business strategies, independent of rivals' strategies.

question

An oligopoly firm is similar to a monopolistically competitive firm in that

answer

both firms have market power.

question

An oligopolist differs from a perfect competitor in that

answer

there are no entry barriers in perfect competition but there are entry barriers in oligopoly.

question

Which of the following is the best example of an oligopolistic industry?

answer

the pharmaceutical industry

question

A characteristic found only in oligopolies is

answer

interdependence of firms

question

Producing a differentiated product occurs in which of the following industries?

answer

monopolistic competition and oligopoly

question

Oligopolies are difficult to analyze because

answer

how firms respond to a price change by a rival is uncertain.

question

In an oligopoly market

answer

one firm's pricing decision affects all the other firms.

question

Marginal revenue for an oligopolist is

answer

difficult to determine because the firm's demand curve is typically unknown.

question

Which of the following is not a reason why government officials are willing to impose entry barriers?

answer

to promote an equitable distribution of income

question

A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called

answer

a business strategy.

question

What is the dominant strategy in the prisoner's dilemma?

answer

Each prisoner confesses because this is the rational action to pursue.

question

The prisoner's dilemma illustrates

answer

why firms will not cooperate if they behave strategically.

question

answer

Yes, Godrickporter should increase its advertising spending.

question

answer

No, its outcome depends on what Godrickporter does.

question

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

answer

advertising that it will match its rival's price

question

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

answer

because each rational player has a dominant strategy to play a certain way regardless of what other players do

question

answer

Yes, the current situation is a Nash equilibrium.

question

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.Refer to Table 14-2. Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?

answer

to signal to each other that they intend to charge the high price

question

In a decision tree, the difference between a decision node and a terminal node is that

answer

at a decision node, a decision must be made while a terminal node shows the payoff.

question

answer

Yes, it will drive BMW out of the market.

question

Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche.Refer to Figure 14-1. If Lexus lowers its price, will this deter BMW from entering the market?

answer

Yes, because BMW stands to lose $100 million if it competes with Lexus.

question

In a subgame perfect equilibrium

answer

each player's strategy constitutes a Nash equilibrium at every subgame of the original game.

question

answer

No, because Gigacom will lose $4.5 million in profits if it carries out its threat.

question

answer

Both offer DSL internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million.

question

The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL). Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition. Figure 14-2 shows the decision tree for this game. Refer to Figure 14-2. Now suppose that the government delays Xenophone's entry and Gigacom moves first, what is the likely outcome in the market?

answer

Both offer internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million.

question

In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use

answer

sequential games.

question

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

answer

threatening to raise prices.

question

Sequential games are used to analyze

answer

situations in which one firm acts and other firms respond.

question

Sequential games are often used to analyze which two types of business strategies?

answer

deterring entry by another firm and bargaining between firms

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