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Which of the following is not an assumption of the theory of perfect competition?
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Each firm produces and sells at differentiated product
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Real-world markets that approximate the four assumptions of the theory of perfect competition include?
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1. Some agricultural markets
2. The stock market
2. The stock market
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The theory of perfect competition generally assumes that?
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Buyers and sellers act independently of other buyers and sellers
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In the theory of perfect competition
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Buyers and sellers of the product know everything that there is to know about the product
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Perfectly competitive industries are
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None of the above
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A "price taker" is a firm that
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does not have the ability to control the price of the product it sells
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Perfectly competitive firms are price takers for all of the following reasons except that
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Barriers to exit force firms to sell at the market price
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The demand curve facing a perfectly competitive firm
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is perfectly horizontal
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The perfectly competitive firm will seek to produce the level of output for which
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marginal cost equals marginal revenue
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Refer to exhibit 23-1. The dollar amounts that go back in blanks (a) and (b) are, respectively
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$12 AND $12
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Refer to Exhibit 23-1. The data in this table are relevant to a perfectly competitive firm because
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it doesn't have to lower price to sell additional units of the product
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Refer to Exhibit 23-1. The marginal revenue curve represented by the information in this table is
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Horizontal
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A perfectly competitive firm should increase its level of production as long as
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...
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If MR>MC, then
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the firm can increase its profits (or minimize its losses) by increasing output
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Consider the following data: equilibrium price = $9, quantity of output produced = 1,000 units, average total cost = $7, and average variable cost $5. Given this, total revenue is __________, total cost is __________, and total fixed cost is __________
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9,000; $7,000; $2,000
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Consider the following data: equilibrium price = $10, quantity of output produced = 100 units, average total cost = $13, and average variable cost = $7. What will the firm do and why?
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Continue to produce in the short run, because price is greater than average variable cost.
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In order for a firm to continue producing, price must exceed __________ and total revenue must exceed __________.
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AVC; total variable costs
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Refer to Exhibit 23-4. The firm sells its product at P1 and produces Q1. Given this situation,
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total cost is equal to area 1 + area 2 + area 3.
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Refer to Exhibit 23-4. The market equilibrium price is P1 and the firm produces Q1. At this level of output, average variable cost and average total cost are indicated by the dots. Given this situation, the firm is
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taking a loss equal to area 2 + area 3.
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Assume a constant-cost industry that is initially in long-run competitive equilibrium. An increase in demand will cause a(n) __________ in prices and profits, and as a result, firms will __________ the industry, causing the market supply curve to shift __________, which, in turn, will eventually cause the equilibrium price to be __________ before.
answer
increase; enter; rightward; the same as
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As firms exit an industry, the industry supply curve shifts __________ and the equilibrium price __________ until long-run competitive equilibrium is established and the surviving firms are earning __________ economic profits.
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Leftward; rises; zero
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Is it possible for a perfectly competitive firm to be maximizing profits, but not achieving resource allocative efficiency?
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No, it is not possible, because the output at which MR = MC is also the output at which P = MC.
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Suppose one firm in a perfectly competitive industry experiences an increase in its costs of production. Which of the following best describes the most likely long run adjustment to this situation?
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The firm in question may suffer losses and exit the industry.
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In a perfectly competitive industry, there is a motive for __________ to advertise in order to induce a rightward shift of the demand curve.
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the industry as a whole
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A perfectly competitive firm faces a __________ demand curve
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perfectly elastic
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Which of the following is an assumption of the theory of monopoly?
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There are extremely high barriers to entry.
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The theory of monopoly assumes that the monopoly firm
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faces a downward-sloping demand curve.
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Suppose firm X is a monopolist and is receiving positive economic profits. What prevents other firms from directly competing away the profits?
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high barriers to entry
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. Which of the following is an example of a legal barrier to entry?
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a public franchise
a patent
exclusive ownership of a scarce resource
a patent
exclusive ownership of a scarce resource
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A public franchise is a right granted
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to a firm by government that prevents other firms from producing the same product or service.
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A natural monopoly exists when
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economies of scale are so large that only one firm can survive and achieve low unit costs.
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Which of the following is the best example of a monopoly?
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a local public utility
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. Public franchises, patents, and government licenses are examples of __________ barriers to entry.
answer
Legal
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If economies of scale are so pronounced in an industry that only one firm can survive in the industry, this firm is called a(n) __________ monopoly.
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Natural
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A seller that has the ability (to some degree) to control the price of the product it sells is called a price
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Searcher
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In the United States, patents are granted to inventors of a product or process for a period of
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20 Years
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A price searcher is
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a firm that has the ability to control to some degree the price of the product it sells.
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In maximizing profits, a single-price monopolist will charge a price that is
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greater than marginal cost.
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If a monopolist wishes to sell an additional unit of the good, then
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it must lower price.
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A monopolist can sell 8,000 units at a price of $10 per unit. Lowering price to all buyers by $1 raises the quantity demanded by 500 units. What is the change in total revenue resulting from this price change?
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-$3500
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A monopolist can sell 26,000 units at a price of $30 per unit. Lowering price by $1 raises the quantity demanded by 1,000 units. What is the change in total revenue resulting from this price change?
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$3000
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For a monopolist, if price is above average total cost, the monopolist is
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Earning an economic profit
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The perfectly competitive firm charges a price equal to __________ while the monopolist charges a price __________.
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marginal cost; greater than marginal cost
marginal revenue; greater than marginal revenue
marginal revenue; greater than marginal revenue
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Which of the following is not a necessary condition for price discrimination to hold?
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It must cost the seller more to service some customers than others.
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Suppose that your school pays one rate for the first one million kilowatts of electricity and a lower rate for any power it uses over one million kilowatts. What economic concept is occurring here?
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second-degree price discrimination
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Second-degree price discrimination is discrimination among
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Quantities
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Third-degree price discrimination is discrimination among
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Buyers
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In general, electric, gas, and water companies are examples of __________ monopolies
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Natural
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The term "arbitrage" refers to
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buying a good in a market where its price is low and selling the good in another market where its price is higher.
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Which of the following is the best example of price discrimination?
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a cellular telephone company charging lower rates to weekend callers than weekday callers
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Which of the following is not an assumption of the theory of monopolistic competition
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All of the above
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Which of the following is one of the assumptions upon which the theory of monopolistic competition is built?
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There are many sellers
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In a monopolistic competitive industry,
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each firm in the industry produces a slightly differentiated product.
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In a monopolistic competitive market, which of the following factors probably does not give rise to product differentiation?
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The smaller number of sellers
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Which of the following industries is the best real-world example of monopolistic competition?
answer
computer software
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The monopolistic competitive firm faces a __________ demand curve and therefore is a price __________.
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downward-sloping; searcher
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. If a monopolistic competitive firm raises its price, then
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it should expect to lose some, but not all, of its customers.
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Compared to a monopolistic competitor, a monopolist produces a good with __________ substitutes and so has a __________ elastic demand curve.
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fewer; more
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Which of the following is an example of a monopolistic competitor?
answer
a family-owned Italian restaurant
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One of the ways in which monopolistic competitors differ from perfect competitors is that
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perfect competitors produce a homogeneous product and monopolistic competitors do not.
there is easy entry and exit for a perfect competitor, but not for a monopolistic competitor.
there is easy entry and exit for a perfect competitor, but not for a monopolistic competitor.
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Does the monopolistic competitive firm exhibit resource-allocative efficiency?
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No, because at its chosen quantity of output, price does not equal the lowest possible average total cost.
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Why can't an economist say for certain that a monopolistic competitive firm will always earn zero economic profits in the long run?
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The firms in the industry do not produce identical products.
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Some economists contend that a monopolistic competitor tends to produce too __________ output, charges a price that is too __________ and __________ its present plant size.
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little; high; underutilizes
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Which of the following is an assumption of the theory of oligopoly?
answer
There are significant barriers to entry.
Firms produce and sell either homogeneous or differentiated products.
Firms produce and sell either homogeneous or differentiated products.
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There are few sellers and many buyers in the
answer
monopolistic competitive market structure.
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. Interdependence implies that each firm in an industry
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is aware that its actions influence the others and that the actions of the other firms affect it.
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Total industry sales are $750 million. The four largest firms have sales of $256 million, $120 million, $78 million, and $42 million. The industry's four-firm concentration ratio is
answer
0.66
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The concentration ratio provides a measure of the extent to which an industry
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is dominated by a small number of firms
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In the real-world, which of these industries is most clearly an oligopoly?
answer
cereal breakfast foods
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A cartel is an organization of firms
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that reduces output and increases price in an effort to increase joint profits.
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The major economic objective of cartels is to
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restrict output, push up price, and increase profits.
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The assumption that precludes economic profits in monopolistic competition in the long run is that
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there is easy entry and exit in this market structure.
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. A monopolistic competitive firm maximizes profits by producing at the point where
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marginal revenue equals marginal cost
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The profit-maximizing oligopolist produces where
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marginal revenue equals marginal cost.
price is greater than average total cost.
price is greater than average total cost.
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Which of the following assumptions applies to both perfect competition and monopolistic competition?
answer
many buyers and sellers
easy entry into and exit from the market
profit is maximized at the level of output for which MR = MC
easy entry into and exit from the market
profit is maximized at the level of output for which MR = MC
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The Sherman Act of 1890 was passed with the intent of
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preventing monopolization and/or conspiracy in the restraint of trade.
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The antitrust act that says, "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal" is the
answer
sherman act
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Antitrust law is legislation passed for the stated purpose of
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controlling monopoly power and preserving and promoting competition.
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"Exclusive dealing" is
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selling to a retailer on the condition that the retailer not carry any rival products.
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Which antitrust legislation made price discrimination illegal?
answer
the Clayton Act
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Which antitrust legislation was passed in an attempt to decrease the failure rate of small businesses by protecting them from competition from large and growing chain stores?
answer
The Robinson-Patman Act
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"Tying Contracts" are
answer
arrangements whereby the sale of one product is dependent on the purchase of some other product.
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. The Federal Trade Commission Act of 1914 declared illegal
answer
unfair or overly aggressive methods of competition.
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An "interlocking directorate" is
answer
an arrangement whereby the directors of one company sit on the board of directors of another company in the same industry.
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The Robinson-Patman Act of 1936 was passed in an attempt to
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decrease the failure rate of small businesses
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The Wheeler-Lea Act of 1938 empowered the Federal Trade Commission to
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deal with false and deceptive advertising.
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The Cellar-Kefauver Antimerger Act of 1950 was designed to
answer
prevent one company from acquiring another company's physical assets if the acquisition reduces competition
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A firm defending itself in an antitrust suit would prefer the market it operates in to be defined _____________, which ______________ the firm's market share compared to what it might be judged otherwise.
answer
broadly; lowers
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Suppose an industry consists of five equal-sized firms. Two of the firms plan to merge. The merger ______________ raise anti-trust concerns at the Justice Department given that the Herfindahl index before the merger was _____________ and the merger would cause the Herfindahl index to rise by __________.
answer
...
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Natural monopoly exists when
answer
one firm can supply the entire output demanded at lower cost than two or more firms can.
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. Which of the following is usually considered a natural monopoly?
answer
none of the above
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Which of the following is an example of government regulation of a natural monopoly distorting incentives?
answer
A natural monopoly is held to average-cost pricing; therefore, it has little incentive to hold costs down.
A natural monopoly is protected from competitors; therefore, it is rude to its customers.
A natural monopoly is protected from competitors; therefore, it doesn't care much about the quality of the product it sells.
A natural monopoly is protected from competitors; therefore, it is rude to its customers.
A natural monopoly is protected from competitors; therefore, it doesn't care much about the quality of the product it sells.
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If government regulators guarantee that a natural monopoly will earn normal profits, then
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the monopolist has little or no incentive to hold down its costs.
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The public interest theory of regulation holds that
answer
regulators are seeking to do and will do through regulation what is in the best interest of the public.
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Evidence pertaining to the airline industry suggests that
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deregulation of the airline industry has brought significant price reductions
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The Clayton Act of 1914
answer
made price discrimination, exclusive dealing, tying contracts, and the acquisition of competing companies' stock illegal when they "substantially lessen competition or tend to create a monopoly."
question
The Sherman Act of 1890
answer
made price discrimination, exclusive dealing, tying contracts, and the acquisition of competing companies' stock illegal when they "substantially lessen competition or tend to create a monopoly."
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Natural monopolies exist because of
answer
economies of scale
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The merger of two firms producing personal computers is an example of a __________ merger.
answer
Horizontal
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The merger of a brewery with an aluminum can producer is an example of a __________ merger.
answer
Vertical
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