question
A monopolistically competitive firm is characterized by the existence of many firms in the market, differentiated products and:
answer
low barriers to entry
question
The monopolistically competitive firm sells a __________ product and faces a __________ demand curve.
answer
differentiated, downward-sloping
question
For what type of market structure is the demand curve the same as marginal revenue?
answer
perfect competition
question
According to the graph, the firm in question is a monopolistically competitive firm:
answer
in long-run equilibrium as indicated by the equality of price and average cost
question
Any action the firm takes to maintain product differentiation over time is known as:
answer
brand management
question
What is the term given to all the activities necessary for a firm to sell a product to a consumer?
answer
marketing
question
According to the graph, if the firm is maximizing profits what is the dollar value of the profit?
answer
$5
question
What trade-offs do consumers face when buying a product from a monopolistically competitive firm?
answer
Consumers pay a price greater than marginal cost but also have a wider array of choices.
question
According to the graph, what will be the firm's total revenue if it is maximizing profits?
According to the graph, what price should the firm charge to maximize profits?
According to the graph, what price should the firm charge to maximize profits?
answer
13500
15
15
question
Which type of efficiency is achieved by a monopolistically competitive firm in the long run?
answer
Neither allocative nor productive efficiency
question
Which of these statements is correct?
answer
Legally enforcing trademarks can be difficult.
question
If a monopolistically competitive firm's demand curve is above its average total cost curve, then this firm is making:
answer
positive economic profit
question
According to the graph, what will happen if Starbucks increases the price of caffe lattes?
answer
it will lose some, but not all, of its customers
question
Monopolistically competitive firms have some control over price because:
answer
the products they produce are differentiated
question
A monopolistically competitive firm in a long-run equilibrium produces where:
answer
its demand curve is tangent to its average total cost curve
question
Using the table data provided, what is the average revenue associated with the sixth unit of output produced and sold?
answer
$3
Total revenue/Q
Total revenue/Q
question
A monopolistically competitive firm produces where:
answer
marginal revenue equals marginal cost
question
A firm may opt to pay millions of dollars for celebrity endorsements in order to:
answer
signal to consumers that the advertised product is appealing and likely to be popular
question
According to the graph, a decrease in price from $3.50 to $3.00 per cup results in a gain and a loss of revenue. Which area represents the gain of revenue?
Which area represents the loss of revenue?
Which area represents the loss of revenue?
answer
B
(gain is in the qty)
A
(loss in price)
(gain is in the qty)
A
(loss in price)
question
Which of the following best describes how the product differentiation of monopolistically competitive firms may benefit consumers?
answer
Product differentiation can locate firms more conveniently to consumers and offer versions of a product or service that better fits their needs.
question
Which of the following best describes the additional revenue associated with selling an additional unit of output?
answer
marginal revenue
question
Which of the following types of firms use the marginal revenue equals marginal cost approach to maximize profits?
answer
Both perfectly competitive and monopolistically competitive
question
What are the most important differences between perfectly competitive markets and monopolistically competitive markets?
Unlike in perfectly competitive markets, in monopolistically competitive markets,
Unlike in perfectly competitive markets, in monopolistically competitive markets,
answer
firms face downward-sloping demand curves, and the products competitors sell are differentiated.
question
Give two examples of products sold in perfectly competitive markets and two examples of products sold in monopolistically competitive markets.
answer
.
Apples and oranges are sold in perfectly competitive markets and Starbucks coffee and Gap clothing are sold in monopolistically competitive markets.
Apples and oranges are sold in perfectly competitive markets and Starbucks coffee and Gap clothing are sold in monopolistically competitive markets.
question
Why does a local McDonald's face a downward-sloping demand curve for its Quarter Pounder?
In monopolistically competitive markets,
In monopolistically competitive markets,
answer
changing the price affects the quantity sold because firms sell differentiated products.
question
If McDonald's raises the price it charges for Quarter Pounders above the prices charged by other fast-food restaurants, won't it lose all its customers?
answer
no
question
Suppose a local McDonald's hamburger restaurant raises the price of its cheeseburgers from $2.00 to $2.50. What will happen to the quantity of McDonald's cheeseburgers demanded?
If McDonald's raises the price of it's cheeseburgers, then
If McDonald's raises the price of it's cheeseburgers, then
answer
some of McDonald's customers, but not all of them, will still demand McDonald's cheeseburgers because they may prefer McDonald's cheeseburgers to cheeseburgers at other fast minus food restaurants.
question
If marginal revenue slopes downward, which of the following is true?
answer
firm must decrease price to sell larger qty
question
What effect does the entry of new firms have on the economic profits of existing firms?
When new firms enter a monopolistically competitive market, the economic profits of existing firms
When new firms enter a monopolistically competitive market, the economic profits of existing firms
answer
will decrease because their demand curve will shift left
question
Is zero economic profit inevitable in the long run for monopolistically competitive firms?
In the long run, monopolistically competitive firms
In the long run, monopolistically competitive firms
answer
may continue to earn profit by convincing consumers their products are different.
question
What is an oligopoly?
An oligopoly is a market structure
An oligopoly is a market structure
answer
small # of independent firms compete
question
Three examples of oligopolies in the United States are industries that produce or sell
answer
computers
automobiles
cigarettes
athletic footwear
automobiles
cigarettes
athletic footwear
question
oligopolies exist due to
answer
barriers to entry
question
What was the primary reason why De Beers at one time faced limited competition due to barriers to entry?
The primary reason that De Beers faced limited competition was because
The primary reason that De Beers faced limited competition was because
answer
only De Beers had access to most of the diamonds
question
Which of the terms below is defined as "anything that keeps new firms from entering an industry in which firms are earning economic profits"?
answer
barrier to entry
question
Economies of scale exist when a firm's ___________ average costs fall as it __________ output.
answer
long-run: increases
question
Which of the following terms is a barrier to entry?
answer
economies of scale
ownership of key input
patents
ownership of key input
patents
question
Give brief definitions of the following concepts: Game theory, cooperative equilibrium, noncooperative equilibrium, dominant strategy, and Nash equilibrium, and price leadership.
To do this, identify the definition for each term from the following list.
1 Actions taken by a firm to achieve a goal, such as maximizing profits.
2 The study of how people make decisions where attaining goals depends on interactions with others.
3 A table that shows the payoffs each firm earns from every combination of firm strategies.
4 An agreement among firms to charge the same price or otherwise not to compete.
5 A strategy that is the best for a firm, no matter what strategies other firms use.
6. A situation in which each firm chooses the best strategy, given the strategies chosen by other firms.
7. A game outcome in which players seek to increase their mutual payoff.
8. A game outcome in which players pursue their own self-interest.
9. A situation in which no player can make himself better off by changing his decision at any decision node.
10. A situation where one firm announces a price change, which is matched by other firms in the industry.
To do this, identify the definition for each term from the following list.
1 Actions taken by a firm to achieve a goal, such as maximizing profits.
2 The study of how people make decisions where attaining goals depends on interactions with others.
3 A table that shows the payoffs each firm earns from every combination of firm strategies.
4 An agreement among firms to charge the same price or otherwise not to compete.
5 A strategy that is the best for a firm, no matter what strategies other firms use.
6. A situation in which each firm chooses the best strategy, given the strategies chosen by other firms.
7. A game outcome in which players seek to increase their mutual payoff.
8. A game outcome in which players pursue their own self-interest.
9. A situation in which no player can make himself better off by changing his decision at any decision node.
10. A situation where one firm announces a price change, which is matched by other firms in the industry.
answer
1.
2. Game Theory
3
4
5. Dominant Strategy
6. Nash equilibrium
7. Cooperative equilibrium
8. Non cooperative equilibrium
9.
10. Price leadership
2. Game Theory
3
4
5. Dominant Strategy
6. Nash equilibrium
7. Cooperative equilibrium
8. Non cooperative equilibrium
9.
10. Price leadership
question
What is the difference between explicit collusion and implicit collusion?
Unlike explicit collusion, implicit collusion
Unlike explicit collusion, implicit collusion
answer
firms signal to eachother without actually meeting
question
Give an example of each.
An example of explicit collusion is
An example of explicit collusion is
answer
where firms meet and agree to not compete, and an example of implicit collusion is price leadership.
question
How is the prisoner's dilemma result changed in a repeated game?
In a repeated game,
In a repeated game,
answer
players can employ retaliation strategies.
question
Bob and Tom are two criminals who have been arrested for burglary. The police put Tom and Bob in separate cells. They offer to let Bob go free if he confesses to the crime and testifies against Tom. Bob also is told that he will serve a 15-year sentence if he remains silent while Tom confesses. If he confesses and Tom also confesses, they will each serve a 10-year sentence. Separately, the police make the same offer to Tom. Assume that if Bob and Tom both remain silent, the police only have enough evidence to convict them of a lesser crime and they will serve 3-year sentences.
a. Use this information to complete the matrix below.
a. Use this information to complete the matrix below.
answer
Both dont confess= 3 years each
both confess= 10 years each
Bob confess& Tom no= B0 T15
Tom Confess & Bob no= B15 T0
both confess= 10 years each
Bob confess& Tom no= B0 T15
Tom Confess & Bob no= B15 T0
question
How does collusion make firms better off?
answer
firms act as a single entity like a monopoly
question
Given the incentives to collude, why doesn't every industry become a cartel?
answer
A.
Most firms that collude have an incentive to "cheat."
B.
High profits attract entry into the market.
C.
Collusion is illegal in the United States.
Most firms that collude have an incentive to "cheat."
B.
High profits attract entry into the market.
C.
Collusion is illegal in the United States.
question
A newspaper article referred to problems OPEC was having in affecting the world price of oil. The article noted that a key problem was OPEC's "inability to enforce internal production targets." An executive at an oil company was quoted as saying: "Those [OPEC countries] crying about too much oil on the market, they could cut it off if they wanted to."
Source: James Herron, "OPEC Hamstrung by Events Beyond Its Control," Wall Street Journal, June 17, 2012.
OPEC tries to affect the world price of oil by
Source: James Herron, "OPEC Hamstrung by Events Beyond Its Control," Wall Street Journal, June 17, 2012.
OPEC tries to affect the world price of oil by
answer
limiting supply of oil
question
OPEC uses "internal production targets" to
answer
set the supply quantity associated with the desired price.
question
The quote by the oil executive means that members of OPEC could
answer
agree to lower their targeted production levels to increase price.
question
An individual country might not agree to lower oil output to increase prices because
answer
it would lose near term revenue and market share to another producer.
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