question
When entry and exit behavior of firms in an industry does not affect a firm's cost structure,
answer
the long-run market supply curve must be horizontal.
question
Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct?
(i)
Marginal revenue equals $3.
(ii)
Average revenue equals $3.
(iii)
Total revenue equals $900
(i)
Marginal revenue equals $3.
(ii)
Average revenue equals $3.
(iii)
Total revenue equals $900
answer
(i), (ii), and (iii)
question
The short-run market supply curve in a perfectly competitive industry
answer
shows the total quantity supplied by all firms at each possible price.
question
In a long-run equilibrium, the marginal firm has
answer
price equal to average total cost
total revenue equal to total cost
economic profit equal to zero
total revenue equal to total cost
economic profit equal to zero
question
In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is
answer
the market supply curve
question
Profit-maximizing firms in a competitive market produce an output level where
answer
marginal cost equals marginal revenue.
question
In a perfectly competitive market, the process of entry and exit will end when firms face
answer
marginal revenue equal to long-run average total cost.
question
Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?
answer
continue to operate at 14 units
question
If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then
answer
...
question
Which of the following industries is most likely to exhibit the characteristic of free entry?
answer
tennis shoes
question
If a firm in a competitive market doubles its number of units sold, total revenue for the firm will
answer
double
question
Refer to Table 14-13. What is the marginal cost of the 8th unit?
answer
$120
question
Refer to Table 14-4. For this firm, the price is
answer
...
question
Refer to Table 14-10. The marginal cost of producing the 4th unit is
answer
$8
question
Refer to Table 14-6. What is the total revenue from selling 7 units?
answer
$840
question
Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's
answer
marginal cost exceeds her marginal revenue.
question
Refer to Table 14-17. Based upon this information, if the firm is producing the profit maximizing output, how much profit does the firm make?
answer
$4
question
Refer to Table 14-9. If the firm's marginal cost is $11, it should
answer
reduce production to increase profit.
question
When determining whether to shut down in the short run, a competitive firm should ignore
(i)
fixed costs.
(ii)
variable costs.
(iii)
sunk costs
(i)
fixed costs.
(ii)
variable costs.
(iii)
sunk costs
answer
(i) and (iii) only
question
Refer to Figure 14-6. Firms will be earn losses in the short run but will remain in business if the market price
answer
is greater than P1 but less than P3.
question
Refer to Figure 14-14. Suppose a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P1 to P2. Which of the following could explain this observation?
answer
An increase in market demand from D0 to D1.
question
Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it
answer
should shut down immediately
question
Which of the following statements best expresses a firm's profit-maximizing decision rule?
answer
If marginal revenue is greater than marginal cost, the firm should increase its output.
question
Which of the following statements best expresses a firm's profit-maximizing decision rule?
answer
If marginal revenue is greater than marginal cost, the firm should increase its output.
If marginal revenue is less than marginal cost, the firm should decrease its output.
If marginal revenue equals marginal cost, the firm should continue producing its current level of output
If marginal revenue is less than marginal cost, the firm should decrease its output.
If marginal revenue equals marginal cost, the firm should continue producing its current level of output
question
A restaurant that has market power can
answer
influence the market price for the meals it sells
question
A competitive firm is currently producing a quantity of output at which marginal revenue exceeds marginal cost. In order to increase its profit, the firm should
answer
increase its quantity of output.
question
The assumption of a fixed number of firms is appropriate for analysis of
answer
the short run but not the long run.
question
Refer to Figure 14-1. If the market price is $5.00, the firm will earn
answer
negative economic profits in the short run but remain in business.
question
The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will
answer
cause the market supply to decline and the price of textiles to rise.
question
Because the goods offered for sale in a competitive market are largely the same,
answer
sellers will have little reason to charge less than the going market price.
question
Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal cost is equal to
answer
$8
question
Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is
answer
all of the above
question
When economists refer to a production cost that has already been committed and cannot be recovered, they use the term
answer
sunk cost
question
A corporation has been steadily losing money on one of its product lines, plastic flamingo lawn ornaments. The firm produces plastic flamingos in a factory that cost $20 million to build 10 years ago. The firm is now considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not to sell is correct?
answer
The $20 million spent on the factory is a sunk cost; that cost should not affect the decision.
question
Which of the following statements regarding a competitive market is not correct?
answer
Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume.
question
Refer to Table 14-16. For this firm, marginal revenue at an output of 10 units is
answer
$15
question
Which of the following examples illustrates an oligopoly market?
answer
a city with two firms who are licensed to sell school uniforms for the local schools
question
Oligopolies would like to act like a
answer
monopoly, but self-interest often drives them closer to the perfectly competitive outcome.
question
Refer to Table 17-16. Which of the following outcomes represents a Nash equilibrium in the game?
answer
middle center
question
There are two types of markets in which firms face some competition yet are still able to have some control over the prices of their products. Those two types of market are
answer
monopolistic competition and oligopoly.
question
A distinguishing feature of an oligopolistic industry is the tension between
answer
cooperation and self interest.
question
Which of the following is correct? When oligopolies collude
answer
they make higher profits but consumers of the product are worse off.
question
In game theory, a Nash equilibrium is
answer
All of the above are correct
an outcome in which each player is doing his best given the strategies chosen by the other players.
an outcome in which no player wishes to change her chosen strategy given the strategies chosen by the other players.
the outcome that occurs when all players have a dominant strategy
an outcome in which each player is doing his best given the strategies chosen by the other players.
an outcome in which no player wishes to change her chosen strategy given the strategies chosen by the other players.
the outcome that occurs when all players have a dominant strategy
question
A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called
answer
a Nash equilibrium
question
Refer to Table 17-14. Which outcome is the Nash equilibrium in this game?
answer
not up right
question
Cartels in the United States are
answer
illegal
question
Refer to Table 17-37. Based upon the information from the table, which firm has a dominant strategy?
answer
both firms
question
Predatory pricing occurs when
answer
A monopolist decreases its prices to maintain its monopoly. Economists are skeptical that this practice is profitable.
question
Refer to Table 17-20. What is Nadia's dominant strategy?
answer
Nadia should always choose Don't Clean.
question
Game theory is important for understanding which of the following market types?
answer
oligoplistic but not perfectly competitive markets
question
Refer to Table 17-19. What is grocery store 1's dominant strategy?
answer
Grocery store 1 should always set a low price.
question
The prisoners' dilemma provides insights into the
answer
difficulty of maintaining cooperation
question
Antitrust laws in general are used to
answer
prevent oligopolists from acting in ways that make markets less competitive.
question
Which of the following statements is correct?
answer
Game theory is not necessary for understanding competitive or monopoly markets.
question
Game theory is necessary to understand which kinds of markets?
(i)
perfectly competitive
(ii)
monopolistically competitive
(iii)
oligopoly
(iv)
duopoly
(v)
monopoly
(i)
perfectly competitive
(ii)
monopolistically competitive
(iii)
oligopoly
(iv)
duopoly
(v)
monopoly
answer
(iii) and (iv) only
question
Refer to Table 17-14. If both players choose their best strategies, player A will earn a payoff of
answer
4
question
An equilibrium occurs in a game when
answer
all players follow a strategy that they have no incentive to change
question
Refer to Figure 17-2. If this game is played only once, then the most likely outcome is that
answer
both firms produce a good quality product.
question
The equilibrium price in a market characterized by oligopoly is
answer
lower than in monopoly markets and higher than in perfectly competitive markets.
question
Refer to Table 15-20. If a monopolist faces a constant marginal cost of $2, how much output should the firm produce in order to maximize profit?
answer
5 units
question
Which of the following statements is not correct?
answer
Antitrust laws automatically prevent mergers between companies that produce similar products.
question
A profit-maximizing monopolist will produce the level of output at which
answer
marginal revenue is equal to marginal cost.
question
If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm
answer
sole ownership of the right to sell the drug for a limited number of years.
question
A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if
answer
it has some degree of monopoly-pricing power.
question
A monopoly market
answer
generally fails to maximize total economic well being
question
Refer to Figure 15-6. What area measures the monopolist's profit?
answer
(K-B)*W
question
Antitrust laws allow the government to
answer
break up companies
question
Refer to Figure 15-1. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure?
answer
natural monopoly
question
Refer to Table 15-4. If the monopolist produces 10 units, what is its average revenue?
answer
$10
question
The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as
answer
price discrimination.
question
In a natural monopoly,
answer
if the government requires marginal cost pricing, it will likely have to subsidize the firm.
question
Most markets are not monopolies in the real world because
answer
there are reasonable substitutes for most goods.
question
When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent
answer
a transfer of benefits from the consumer to the producer.
question
Which of the following statements is correct?
answer
If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.
question
In reality, perfect price discrimination is
answer
rarely possible
question
The legislation passed by Congress in 1914 to strengthen the government's powers and authorize private lawsuits was the
answer
Clayton Act
question
Refer to Figure 15-3. Which panel could represent the demand curve facing a soybean farmer?
answer
Panel B
question
Price discrimination
answer
is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.
question
The marginal revenue curve for a monopoly firm starts at the same point on the vertical axis as the
(i)
average revenue curve.
(ii)
marginal cost curve.
(iii)
demand curve
(i)
average revenue curve.
(ii)
marginal cost curve.
(iii)
demand curve
answer
(i) and (iii) only
question
A monopoly is an inefficient way to produce a product because
answer
it produces a smaller level of output than would be produced in a competitive market.
question
Refer to Table 15-4. In order to maximize profits, the monopolist should produce
answer
where marginal revenue equals marginal cost.
question
Refer to Figure 15-18. If the monopoly firm perfectly price discriminates, then the deadweight loss amounts to
answer
$0
question
Refer to Figure 15-4. If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to
answer
decrease
question
Refer to Figure 15-18. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to
answer
$0
question
Monopolies use their market power to
answer
charge a price that is higher than marginal cost
question
Which of the following is an example of price discrimination?
answer
Hotel rates for AAA members are lower than for nonmembers.
question
When the marginal revenue curve is drawn for a monopolist, the curve
answer
is below the monopolist's demand curve, beyond the initial unit produced.
question
Which of the following is not correct?
answer
A monopolist can charge any price and sell any quantity that it chooses.
question
Which of the following is not a reason for the existence of a monopoly?
answer
marginal-cost pricing
question
For a long while, electricity producers were thought to be a classic example of a natural monopoly. People held this view because
answer
the average cost of producing units of electricity by one producer in a specific region was lower than if the same quantity were produced by two or more producers in the same region.
question
Refer to Figure 15-3. Which of the following statements is correct?
answer
Panel B represents the typical demand curve for a perfectly competitive firm, and Panel A represents the typical demand curve for a monopoly.
question
Refer to Figure 15-5. Profit on a typical unit sold for a profit-maximizing monopoly would equal
answer
P2-P5.
question
Under which of the following market structures would consumers likely pay the highest price for a product?
answer
monopoly
question
Refer to Figure 16-5. Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?
answer
panel c
question
Which of the following statements is correct?
answer
Brand names may help consumers if they provide information about the quality of a product when acquiring such information is difficult.
question
If a monopolistically competitive firm can increase its level of production and lower its average total cost of production at the same time then
answer
the firm has excess capacity.
question
The entry of new firms into a monopolistically competitive market is accompanied by
answer
both positive and negative externalities.
question
Refer to Table 16-5. What price should this firm charge to maximize profit?
answer
$18
question
Which of the following is an example of a monopolistically competitive industry?
answer
movies
question
Refer to Figure 16-9. Given this firm's cost curves, if the firm were perfectly competitive rather than monopolistically competitive, then in a long-run equilibrium it would produce
answer
not between 100 and 133
question
Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm charge a price that exceeds marginal cost?
answer
monopoly and monopolistic competition only
question
The lower the concentration ratio, the
answer
more competitive the industry
question
A monopolistically competitive firm chooses the quantity to produce where
answer
marginal revenue equals marginal cost.
question
Refer to Figure 16-14. Which of the following best describes the profit-maximizing outcome for the firm depicted here?
answer
This firm is in long run equilibrium and will continue to earn zero profit.
question
A monopolistically competitive firm is currently charging a price of $20 and producing 3,000 units/month. It faces monthly fixed costs of $1,000 and has an average variable cost of $22/unit. We would expect:
answer
not The firm to raise its price to cover its variable costs
question
Because monopolistically competitive firms produce differentiated products, each firm
answer
has some control over product price.
question
Which of the following is a commonly-cited benefit of advertising?
answer
Advertising can be a signal of the quality of a product.
question
A monopolistically competitive market could be considered inefficient because
answer
price exceeds marginal cost.
question
An oligopoly
answer
is a type of imperfectly competitive market.
question
As new firms enter a monopolistically competitive market, profits of existing firms
answer
decline, and product diversity in the market increases.
question
The two types of imperfectly competitive markets are
answer
monopolistic competition and oligopoly.
question
In the long run, a monopolistically competitive firm produces a quantity that is
answer
less than the efficient scale.
question
Which of the following market structures is considered a differentiated products market?
answer
Monopolistic competition
question
Deadweight losses are associated with monopolistic competition:
answer
In both the short and long run
question
If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will
answer
be able to increase its markup over marginal cost.
question
The relationship between advertising and product differentiation is
answer
positive; the more differentiated the product, the more a firm is likely to spend on advertising.
question
Refer to Figure 16-4. Assume the firm in the figure is currently producing 20 units of output and charging $925. The firm
answer
will increase its profits if it lowers its price and expands its production level.
question
Refer to Figure 16-11. How much consumer surplus will be derived from the purchase of this product at the monopolistically competitive price?
answer
$250
question
To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of output at which
answer
marginal revenue equals marginal cost.
question
Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry?
answer
panel c
question
When a firm's demand curve is tangent to its average total cost curve, the
answer
firm's economic profit is zero.
question
A monopolistically competitive market
answer
is imperfectly competitive, but not all imperfectly competitive markets are monopolistically competitive
question
A typical firm in the US economy would be classified as
answer
imperfectly competitive.
question
A firm can signal the high quality of its product by
answer
spending a large amount of money on advertising.
question
Refer to Table 16-3. Based on the concentration ratio, which industry is the most competitive?
answer
industry c
question
According to the signaling theory of advertising, consumers
answer
are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement.
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