Microeconomics Kadambe Final

Which of the following is a characteristic of monopoly?
A) The firm's demand curve is perfectly elastic.
B) The firm produces a product that has many close substitutes.
C) There are barriers to enter the market.
D) The firm faces competition from a few other firms.

Patents encourage invention by
A) preventing inventors from working on the same project.
B) offering subsidies to inventors.
C) offering tax breaks to inventors.
D) allowing patent owners to make an economic profit.

A barrier to entry is
A) the result of highly elastic demand.
B) a necessary condition for perfect competition.
C) a natural or legal impediment that makes it difficult for new firms to enter a market.
D) a brick wall that a firm places around its corporate headquarters.

A monopoly is best defined as a firm that
A) purchases its resources from only one supplier because of a barrier preventing it from buying
from other suppliers.
B) cannot control the price it sets for its good or service because there is barrier that prevents the
firm from changing the price.
C) produces a good or service for which no close substitute exists and that sells all its output to
one buyer because there is barrier preventing other buyers from purchasing the good or
service.
D) produces a good or service for which no close substitute exists and which is protected by a
barrier that prevents other firms from selling that good or service.

Public franchises create monopolies by restricting
A) prices. B) profit. C) demand. D) entry.

A single-price monopoly's demand curve lies
A) on top of its marginal revenue curve.
B) on top of its total revenue curve.
C) above its marginal revenue curve.
D) below its marginal revenue curve

Which of the following is ALWAYS true for a profit-maximizing single-price monopolist?
A) P > MR
B) P > MC
C) MR = MC
D) All of the above are always true.

A single-price monopolist will find when it produces its profit-maximizing amount of output that
A) marginal revenue equals marginal cost.
B) price exceeds marginal cost.
C) price exceeds marginal revenue.
D) All of the above occur at the profit-maximizing output level.

A profit maximizing single-price monopolist charges a price equal to
A) average total cost.
B) the price necessary for the firm to earn a normal return on its investment.
C) the highest price consumers are willing to pay for the profit maximizing quantity.
D) marginal revenue.

Unregulated monopolies can often make an economic profit in the long run because
A) barriers to entry prevent competing firms from entering the market.
B) the risks of running a monopoly are high.
C) they receive government subsidies.
D) they have high costs.

Which of the following is true for BOTH monopoly and a perfectly competitive firm?
A) The marginal revenue curve is horizontal at the market equilibrium price.
B) Profits are maximized by producing at the level of output where marginal revenue is equal to marginal cost.
C) The demand for the individual firm's product is perfectly elastic.
D) Economic profits can be sustained indefinitely over time.

A key difference between a monopoly and a perfectly competitive firm is that the monopolist
A) has a marginal revenue curve that lies below its demand curve.
B) has no marginal cost curve.
C) faces a perfectly elastic demand for its product.
D) does not face fixed costs in the short run.

Compared to a single-price monopoly, a perfectly competitive market with the same costs produces ________ output and has a ________ price.

A price discriminating monopolist charges lower prices to customers with
A) lower willingness to pay.
B) higher supply elasticities.
C) lower supply elasticities.
D) higher willingness to pay.

Perfect price discrimination
A) cannot result in profit maximization.
B) turns all the producer surplus into consumer surplus.
C) creates a deadweight loss.
D) turns all the consumer surplus into economic profit.

Price discrimination
A) converts consumer surplus into producer surplus.
B) converts producer surplus into economic profit.
C) converts deadweight loss into consumer surplus.
D) maximizes the difference between consumer surplus and producer surplus.

For a monopoly able to practice perfect price discrimination, the market
A) demand curve is the same as the marginal revenue curve.
B) demand curve is the same as the marginal cost curve. C) supply curve is the same as the marginal revenue curve. D) supply curve is the same as the marginal cost curve.

One advantage of regulating a monopoly is ________.
A) monopoly practices last forever
B) price regulations are unconstitutional
C) unregulated firms try to avoid creating deadweight loss
D) regulation helps markets achieve efficiency associated with perfectly competitive output.

Today, you might be buying from a regulated natural monopoly when you purchase
A) a house, a condominium, or a plot of land.
B) natural gas or electricity.
C) a car, a truck, or a bicycle.
D) a computer, a phone, or a camera.

A marginal cost pricing rule for a natural monopoly sets ________.
A) price equal to marginal cost and greater than average total cost
B) marginal revenue equal to average total cost
C) price equal to marginal cost
D) marginal revenue equal to marginal cost

Which of the following statements regarding a marginal-cost pricing rule for a natural monopoly is WRONG?
A) The firm produces the efficient quantity.
B) It maximizes total surplus in a regulated industry.
C) The firm's price equals its marginal cost.
D) The firm makes an economic profit.

The use of a two-part price in a regulated natural monopoly
A) allows the firm to maximize profits.
B) may make it possible for the firm to obey a marginal cost pricing rule so as to avoid economic loss a consequence of marginal cost pricing regulation and to stay in the business.
C) maximizes the deadweight loss.
D) All of the above answers are correct.

For a regulated natural monopoly, an average cost pricing rule sets price equal to
A) average fixed cost.
B) average external cost.
C) average variable cost.
D) average total cost.

Which of the following statements regarding an average-cost pricing rule for a natural monopoly is WRONG?
A) More output is produced than if the firm maximized profit.
B) It sets price equal to average total cost.
C) The firm earns zero economic profit.
D) It is efficient.

In 2008, a former Intel engineer has been charged with stealing trade secrets worth $1 billion. Intel owns 90 percent of the worldwide market for microprocessors, AMD has the rest. Conducting R&D is very expensive so suppose that each of these firms can either steal R&D or develop their own R&D. If both firms develop their own R&D, economic profit will be $50 million each. If one
company steals R&D, that firm earns $100 million in economic profit while the other firm earns $10 million. If both firms steal R&D, each firm breaks even. What is the outcome of this game?
A) Only one firm will conduct R&D, but we cannot predict which firm will conduct R&D.
B) Both firms will steal R&D.
C) The outcome will be a dominant strategy equilibrium.
D) Both firms will conduct R&D.

In 2008, a former Intel engineer has been charged with stealing trade secrets worth $1 billion. Intel owns 90 percent of the worldwide market for microprocessors, AMD has the rest. The
microprocessor market is most like an example of
A) monopoly.
B) monopolistic competition.
C) perfect competition.
D) oligopoly.

Kellogg's and General Mills are two of the dominant breakfast cereal manufactures in the U.S. Each firm can either sign or not sign an exclusive contract with an Olympian gold-medal athlete to
appear on the cover of a cereal box. If both companies sign an athlete, they will each make $5
million in economic profit. If only firm signs, they earn $8 million in economic profit and the other
firm incurs an economic loss of $1 million. If neither firm signs, they break even. What is the outcome of this game if it is only played once?
A) General Mills will sign an athlete and Kellogg's will not sign an athlete.
B) Neither Kellogg's nor General Mills will sign an athlete.
C) Both Kellogg's and General Mills will sign an athlete.
D) Kellogg's will sign an athlete and General Mills will not sign an athlete.

Iran called on OPEC in November 2008 to cut production by a further 1 million to 1.5 million barrels per day when it meets in Cairo later this month. Why would OPEC, a cartel, restrict production?
A) to decrease demand
B) to decrease quantity supplied
C) to increase supply
D) to increase profits

The EU's antitrust chief in November 2008 fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel. What are the economic justifications of making price fixing illegal?
A) The cartel increases quantity supplied in the market causing a surplus and therefore harming other producers.
B) Consumers suffer because of decreased consumer surplus and the outcome is inefficient because of deadweight loss.
C) The cartel increases quantity supplied in the market causing a shortage.
D) An oligopoly cartel can maximize profit and behave like a natural monopoly.

Two firms make most of the consumer alkaline batteries in the country: Duracell and Energizer. The market for batteries is most likely
A) monopolistically competitive.
B) perfectly competitive.
C) a monopoly.
D) an oligopoly.

The EU's antitrust chief in November 2008 fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel. Cartels tend to arise in ________ markets.
A) monopolistic
B) monopolistically competitive
C) perfectly competitive
D) oligopolistic

The Sherman Act of 1890 was passed to prohibit
A) monopolization or attempts to monopolize interstate or international trade.
B) combinations, trusts, or conspiracies to restrict interstate or international trade.
C) both of the above.
D) neither of the above.

Under Federal Trade Commission merger guidelines, an industry with a Herfindahl-Hirschman index (HHI) of 800 points is considered
A) competitive.
B) moderately concentrated.
C) a monopoly.
D) concentrated.

The second federal antitrust law was passed in 1914. This antitrust law is the
A) Cellar-Kefauver Amendment.
B) Taft-Hartley Act.
C) Robinson-Patman Amendment.
D) Clayton Act.

As the Federal Trade Commission currently interprets the Herfindahl-Hirschman index (HHI), an industry is considered to be moderately concentrated if the HHI value is
A) between 1,500 and 2,500.
B) between 3,000 and 6,000.
C) between 100 and 1,500.
D) between 1,000 and 3,500.

The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 1575 and two of the competing banks have considered merging. Because the merger would raise the HHI by 55 points, the Federal Trade Commission would likely
A) challenge the merger.
B) allow the merger under the condition that the HHI remain at the premerger level of 1575.
C) not challenge the merger.
D) allow the merger under the condition that HHI does not rise by more than 55 points as promised.

The Sherman Act
A) abolished tariffs.
B) outlawed natural monopolies.
C) was the first federal tariff.
D) prohibited attempts to monopolize.

In an oligopoly
A) there is free entry and exit.
B) firms' decisions are unrelated to each other.
C) there is no product differentiation.
D) there are only a few firms.

Which of the following is a distinguishing characteristic of oligopoly?
A) No one firm's actions directly affect the actions of the other firms.
B) Natural or legal barriers prevent the entry of new firms. C) Firms are free to enter and exit the industry.
D) A large number of firms compete.

________ is a group of firms that have colluded to limit their output and raise their price.
A) An oligopoly
B) A cartel
C) A strategy
D) A duopoly

An oligopoly is a market structure in which there are
A) many sellers selling a differentiated product.
B) a few products sold by many sellers.
C) only a few buyers but many sellers.
D) only a few sellers selling either an identical or differentiated product.

When only a small number of producers compete with each other is a defining characteristic of
A) oligopoly.
B) efficient competition.
C) inelastic supply.
D) monopolistic competition.

Oligopoly is
A) like perfect competition because oligopoly firms all sell homogeneous goods.
B) like monopoly because there are barriers to entry.
C) like monopolistic competition because oligopoly firms all sell differentiated goods.
D) like perfect competition because there are many firms in the industry.

The simplest prisoners' dilemma is a game that, in part, requires
A) two players who are unable to communicate with each other.
B) two players who are able to communicate with each other.
C) monopolistic competition.
D) an oligopoly with one very large firm.

The prisoners' dilemma has an equilibrium that is
A) not a Nash equilibrium and both players confess.
B) a Nash equilibrium and both players confess.
C) a Nash equilibrium and both players deny.
D) not a Nash equilibrium and both players deny.

In an oligopoly with a collusive agreement, the total industry profits will be smallest when
A) the firms act as a monopoly.
B) all firms comply with the agreement.
C) all firms cheat on the agreement.
D) one firm cheats on the agreement and the other firms do not cheat.

Game theory is most useful for determining the outcome when ________.
A) monopolistic competition exists
B) the market is dominated by a monopoly
C) the market structure is oligopoly
D) prison terms are involved

Consider the prisoner's dilemma model where two criminals have two options (confess or deny), and each criminal must make their decision without speaking to the other criminal first. If they
both confess they each get 3 years, if only one confesses then he gets 1 and his partner gets 10, and
if neither confesses then they each get 0. They are in fact both guilty. In this game, the Nash
equilibrium is where
A) only one will confess.
B) both confess.
C) neither one confesses.
D) It is impossible to say.

In a prisoner's dilemma, the Nash equilibrium occurs where
A) only one ends up with his best outcome.
B) both end up with their best outcome.
C) neither person ends up with their best outcome.
D) the one who goes first ends up with his best outcome.

Antitrust law is the law that regulates ________ and prevents them from becoming ________.
A) monopolistically competitive firms; oligopolies
B) oligopolies; monopolies
C) oligopolies; monopolistically competitive firms
D) monopolies; oligopolies

The second federal antitrust law was passed in 1914. This antitrust law is the
A) Robinson-Patman Amendment.
B) Cellar-Kefauver Amendment.
C) Taft-Hartley Act.
D) Clayton Act.

Which of the following business practices, if proven to exist, is always illegal under U.S. antitrust law?
A) price fixing among competitors
B) tying arrangements
C) exclusive dealing
D) all of the above

As the Federal Trade Commission currently interprets the Herfindahl-Hirschman index (HHI), an industry is considered to be moderately concentrated if the HHI value is
A) between 3,000 and 6,000.
B) between 1,500 and 2,500.
C) between 100 and 1,500.
D) between 1,000 and 3,500.

A market in which the Herfindahl-Hirschman Index is 1,000 is regarded by the Federal Trade Commission as
A) competitive.
B) moderately concentrated.
C) concentrated.
D) monopolistic.

Antitrust law is A law that
A) prohibits certain kinds of market behavior by firms.
B) does not allow individuals to open trust savings accounts.
C) allows firms under special circumstances to be a monopoly.
D) prohibits competition in certain industries.

The Federal Trade Commission is an agency charged with
A) enforcing antitrust laws.
B) regulating international commerce.
C) regulating interstate commerce.
D) enforcing product safety laws.