Microeconomics Test 3 Brister ACU

question

Define Monopoly:

answer

A single producer of a product for which there is no close substitute.

question

Define Duopoly:

answer

An industry with just two dominant firms.

question

Define Oligopoly:

answer

An industry with a few firms would be a oligopoly.

question

Monopolistic Competition:

answer

...

question

All firms advertise except:

answer

those in a purely competitive industry.

question

Oligopoly and monopolistic competition engage in:

answer

non-price competition.

question

Major anti-trust laws include:

answer

The Sherman Act, The Federal trade Commission Act, The Clayton Act, Robinson-Patman Act, Wheeler-Lea Act, The Celler-Kefauver Act, The Tunney Act, and The Hart-Scott-Rodino Act.

question

Sherman Act Provisions:

answer

Any contract, combination, or conspiracy in restraint of interstate or foreign trade is illegal. Any monopoly or attempt to monopolize is illegal (Problem with this: too broad and no enforcement agency).

question

Clayton Act Provisions:

answer

This act prohibits the following:
1. Price Discrimination
2. Tying Contracts
3. Exclusive Dealings
4. Holding Companies
5. Interlocking Directories

question

The Federal Trade Commision Act Provisions:

answer

enforces consumer protection legislation and prohibits deceptive advertising.

question

Horizontal Merger Combination:

answer

1. Competitors Merge
Example: two railroad lines merge.

question

Vertical Merger Combination:

answer

The firm acquires other companies in order to own all the steps in the production process (examples Steel and Petroleum Industries).

question

Circular Merger Combination:

answer

The firm acquires companies which produce related goods sold in the same market (standard brands and fine-fare brands that are both sold in grocery stores).

question

Economies of Scale Include:

answer

1. Reduce unit costs by spreading fixed costs over larger output
2. Greater specialization--assembly line production (mass production).
3. Automation--Technology Application.
4. Diversification of Products
5. Raise capital easily--sell stock or bonds.
6. Hire the best brains.
7. Conduct Research.
8. Administer Prices.

question

Diseconomies of Scale:

answer

1. Large size is practical for mass producing identical terms. Large firms have a difficult time making products unique or personalized.

2. Small business firms exist to serve local markets --Mrs Baird's Bread, etc.

3. Red tape and bureaucracy of large firms stifle creativity and initiative.

4. Some tax disadvantages.

question

Non-Price competition/How big businesses compete today:

answer

1. Disguised price reductions: Rebates, trading stamps, box tops, trade-ins, coupons.
2. Product Improvement.
3. Selling techniques (putting milk at back of the store).
4. Advertising.
5. Packaging
6. Guarantees, Warranties.
7. Service

question

Types of Monopolies:

answer

1. Legal Monopolies (the U.S. Post office).
2. Patents (good for 17 years and copyrights good for life of the creator plus 70 years and trademarks).
3. Strategic Resource Monopoly )DeBeers Diamond company).
4. Deliberately erected entry barriers (starting costly lawsuits forcing others to match the expenditure).
5. Large-Sunk Costs (Boeing)
6. Technical Superiority (Microsoft or Apple)
7. Natural Monopoly (Utility Companies and Alcoa during WWII).
8. Personal Monopoly (Red Adair)

question

The two main reasons why Monopoly is undesirable are:

answer

1. The monopolist produces less than perfect competition, and
2. It charges a higher price.

question

The purpose of advertising is to:

answer

shift the demand curve for the product to the right.

question

the Characteristics of Oligopoly:

answer

1. Mutual Interdependence and
2. Rigid Prices

question

The characteristics of Monopolistic Competition include:

answer

1. Numerous Participants--
2. Freedom of exit and entry
3. Perfect Information
4. Heterogenous products (each product differs)

question

The Concentration Ratio: Sales of top 4 firms/Sales of all firms in the industry, tells us:

answer

the percent of how much the top industries are selling.

question

A market is perfectly contestable if:

answer

entry and exit are costless and unimpeded.

question

Firms get bigger by what?

answer

1. Merging with other firms.
2. Using retained earnings to expand the company.
(Mergers + acquisition)

question

Circular Combinations have come to be known by what name?

answer

Conglomerates.

question

A holding company is:

answer

a company set up on paper to acquire a controlling interest in other companies.

question

A trust is:

answer

a company set up on paper to acquire a controlling interest in other companies.

question

A holding company is legal if they

answer

substantially stifle the competition.

question

The XYZ model of Holding companies is pretty much illegal unless it is done with:

answer

Holding companies and banks.

question

An electric trust (you give stock to other companies to manage) is always illegal because of the:

answer

Sherman Act.

question

Ways of reducing competition include:

answer

1. Trade Associations (AMA) - you can't fix prices though
2. Gentlemen's agreements - Illegal
3. Pools--Cartels - Also illegal
4. Interlocking Directorates - This is made illegal by the Clayton act which also applies to holding.

question

Conditions necessary for Pure Competition include:

answer

1. Many, many producers.
2. Homogenous Product.
3. Profit Maximizers.
4. Perfect market information.
5. Absolute mobility of resources.

question

Conclusion to the competitive model:

answer

In long run equilibrium, all firms produce at the point of maximum efficiency (society also gets the most goods at the lowest prices).

Technical efficiency: MC = ATC
Economic Efficiency: MC = MU

question

The marginal revenue curve lies below the demand curve because:

answer

the demand curve slopes downward.

question

The Ramsey Pricing Rule states that:

answer

We want the price to rise above MC to create the least distortion of demand. Therefore, in a multi-product, regulated firm in which prices must exceed MC in order for the firm to break even, the ratios of P to MC should be the largest for those of the firm's products whose elasticities of demand are the smallest.

question

There is no specific number of firms in an:

answer

Oligopoly

question

What is a cartel?

answer

In a cartel, firms collude directly and coordinate their actions to transform the industry into a giant monopoly. A notable cartel is the organization of petroleum exporting countries (OPEC).

question

Many economists consider _______ to be the worst form of market organization.

answer

Cartel

question

Tacit Collusion is done with the thought that they will

answer

do unto their competitors as they hope their competitors will do unto them.

question

One common form of Tacit Collusion is price leadership and price leadership is:

answer

usually the dominant firm.

question

In sales maximization:

answer

Management's compensation often relates more directly to company size, as measured by sales volume, than to profit.

question

Technostructure:

answer

A formation of different committees (board of directors - CEO, VP, CFO, etc.)

question

In sales maximization, firm managers may select:

answer

price-output combinations that maximize sales rather than profits.

question

Technostructural type committees want to:

answer

1. Remain autonomous - they want to satisfice.
2. Make the company grow.

question

The most widely used approach in Oligopoly:

answer

assumes that the rival wants to destroy it.

question

Game theory The prisoners dilemma:

answer

States that if both prisoners deny the crime, both go free, for the police have no evidence on the other.
But if one confesses and the other does not, the silent prisoner can expect the key to his cell be thrown away (I.e. the best decision is to both admit nothing).

question

The Maximin Criterion:

answer

The prisoners in the prisoner dilemma should pick the best of the bad outcomes.

question

The Nash equilibrium states that:

answer

both players adopt moves such that each player's move is its most profitable response to the other's move.

question

In the game theory/prisoner dilemma you use:

answer

the better of the worst unless the worse is repeated.

question

The price leader will look just like a:

answer

Monopoly

question

A kinked demand curve assumes that:

answer

Rivals will follow a price cut, but ignore a price increase.

question

In monopolistic competition:

answer

your product is unique in some way.

question

Hotelling's Paradox

answer

The firm in monopolistic competition must produce a product with maximum differentiation from its competitors' products and with minimum differences between them. This of course is a paradox.

question

Both stocks and bonds come under the term:

answer

"Securities"

question

Stocks represent:

answer

Ownership in a corporation

question

Bonds represent:

answer

Money lent to a corporation or a government.

question

When does a company pay dividends?

answer

When they want to

question

Common stock:

answer

Votes
Dividends Vary
Last in liquidation

question

Preferred stock:

answer

Does not vote
Set Dividend
Before Common in liquidation

question

The conclusion of Oligopoly:

answer

In equilibrium, MC may be unequal to MR because they may pursue goals other than profits.

question

The interest on a municipal bond is:

answer

Tax exempt.

question

Coupon rate/price of bond is judged by:

answer

the price you payed for the bond.

question

A $1000 bond with a coupon rate of 12.75% sells for $1030, what is the current yield?

answer

$127,50/1030 = 12.379

question

Before January 2006, a member of the NYSE had to buy his/her membership or seat. On September 29, 2004, a seat on the exchange went for

answer

1.2 million and today seat holders are called shareholders in the NYSE

question

Supply and Demand

answer

sets prices for stock

question

Dealer owns stock broker does not, but both

answer

sell stock.

question

Types of stock orders to give your broker:

answer

1. At the market--buy it at the best price you can
2. Limit order - specifies price
3. Odd-lot-order - an order to buy or sell less than 100 shares.

question

Backward Integration

answer

Buying supply sources.

question

Forward integration

answer

Buying storage/gas tankard etc.

question

If you dont regulate for WTU where MC = MR then

answer

1. Ideal output
2. Av cost and normal profit

question

The kink demand curve explains why

answer

Prices are so sticky at Oligopoly

question

Why is it elastic above and then inelastic below the kink demand curve?

answer

Because your rivals will ignore a price increase but follow a price cut.

question

Monopolistic competition describes most

answer

American Businesses

question

The company takes their own

answer

Plowback

question

The interest printed on the front of the bond is the

answer

coupon rate.

question

When interest rates go up Bond prices go

answer

down.

question

What is the best way to minimize your risk in the stock market?

answer

Have a diversified portfolio.

question

who regulates the stock market?

answer

The SCC

question

All stock exchanges are:

answer

Secondary

question

A special type of bank could be a:

answer

Investment bank.

question

Sometimes a corporate raider will buy a significant portion of a company's outstanding stock and then threaten to take it over. Current management may offer to buy the stock back at an inflated price. This practice is called:

answer

Greenmailing.

1 of 81

question

Define Monopoly:

answer

A single producer of a product for which there is no close substitute.

question

Define Duopoly:

answer

An industry with just two dominant firms.

question

Define Oligopoly:

answer

An industry with a few firms would be a oligopoly.

question

Monopolistic Competition:

answer

...

question

All firms advertise except:

answer

those in a purely competitive industry.

question

Oligopoly and monopolistic competition engage in:

answer

non-price competition.

question

Major anti-trust laws include:

answer

The Sherman Act, The Federal trade Commission Act, The Clayton Act, Robinson-Patman Act, Wheeler-Lea Act, The Celler-Kefauver Act, The Tunney Act, and The Hart-Scott-Rodino Act.

question

Sherman Act Provisions:

answer

question

Clayton Act Provisions:

answer

This act prohibits the following:
1. Price Discrimination
2. Tying Contracts
3. Exclusive Dealings
4. Holding Companies
5. Interlocking Directories

question

The Federal Trade Commision Act Provisions:

answer

enforces consumer protection legislation and prohibits deceptive advertising.

question

Horizontal Merger Combination:

answer

1. Competitors Merge
Example: two railroad lines merge.

question

Vertical Merger Combination:

answer

The firm acquires other companies in order to own all the steps in the production process (examples Steel and Petroleum Industries).

question

Circular Merger Combination:

answer

The firm acquires companies which produce related goods sold in the same market (standard brands and fine-fare brands that are both sold in grocery stores).

question

Economies of Scale Include:

answer

question

Diseconomies of Scale:

answer

question

Non-Price competition/How big businesses compete today:

answer

question

Types of Monopolies:

answer

question

The two main reasons why Monopoly is undesirable are:

answer

1. The monopolist produces less than perfect competition, and
2. It charges a higher price.

question

The purpose of advertising is to:

answer

shift the demand curve for the product to the right.

question

the Characteristics of Oligopoly:

answer

1. Mutual Interdependence and
2. Rigid Prices

question

The characteristics of Monopolistic Competition include:

answer

1. Numerous Participants--
2. Freedom of exit and entry
3. Perfect Information
4. Heterogenous products (each product differs)

question

The Concentration Ratio: Sales of top 4 firms/Sales of all firms in the industry, tells us:

answer

the percent of how much the top industries are selling.

question

A market is perfectly contestable if:

answer

entry and exit are costless and unimpeded.

question

Firms get bigger by what?

answer

1. Merging with other firms.
2. Using retained earnings to expand the company.
(Mergers + acquisition)

question

Circular Combinations have come to be known by what name?

answer

Conglomerates.

question

A holding company is:

answer

a company set up on paper to acquire a controlling interest in other companies.

question

A trust is:

answer

a company set up on paper to acquire a controlling interest in other companies.

question

A holding company is legal if they

answer

substantially stifle the competition.

question

The XYZ model of Holding companies is pretty much illegal unless it is done with:

answer

Holding companies and banks.

question

An electric trust (you give stock to other companies to manage) is always illegal because of the:

answer

Sherman Act.

question

Ways of reducing competition include:

answer

question

Conditions necessary for Pure Competition include:

answer

1. Many, many producers.
2. Homogenous Product.
3. Profit Maximizers.
4. Perfect market information.
5. Absolute mobility of resources.

question

Conclusion to the competitive model:

answer

In long run equilibrium, all firms produce at the point of maximum efficiency (society also gets the most goods at the lowest prices).

Technical efficiency: MC = ATC
Economic Efficiency: MC = MU

question

The marginal revenue curve lies below the demand curve because:

answer

the demand curve slopes downward.

question

The Ramsey Pricing Rule states that:

answer

question

There is no specific number of firms in an:

answer

Oligopoly

question

What is a cartel?

answer

In a cartel, firms collude directly and coordinate their actions to transform the industry into a giant monopoly. A notable cartel is the organization of petroleum exporting countries (OPEC).

question

Many economists consider _______ to be the worst form of market organization.

answer

Cartel

question

Tacit Collusion is done with the thought that they will

answer

do unto their competitors as they hope their competitors will do unto them.

question

One common form of Tacit Collusion is price leadership and price leadership is:

answer

usually the dominant firm.

question

In sales maximization:

answer

Management's compensation often relates more directly to company size, as measured by sales volume, than to profit.

question

Technostructure:

answer

A formation of different committees (board of directors - CEO, VP, CFO, etc.)

question

In sales maximization, firm managers may select:

answer

price-output combinations that maximize sales rather than profits.

question

Technostructural type committees want to:

answer

1. Remain autonomous - they want to satisfice.
2. Make the company grow.

question

The most widely used approach in Oligopoly:

answer

assumes that the rival wants to destroy it.

question

Game theory The prisoners dilemma:

answer

question

The Maximin Criterion:

answer

The prisoners in the prisoner dilemma should pick the best of the bad outcomes.

question

The Nash equilibrium states that:

answer

both players adopt moves such that each player's move is its most profitable response to the other's move.

question

In the game theory/prisoner dilemma you use:

answer

the better of the worst unless the worse is repeated.

question

The price leader will look just like a:

answer

Monopoly

question

A kinked demand curve assumes that:

answer

Rivals will follow a price cut, but ignore a price increase.

question

In monopolistic competition:

answer

your product is unique in some way.

question

Hotelling's Paradox

answer

The firm in monopolistic competition must produce a product with maximum differentiation from its competitors' products and with minimum differences between them. This of course is a paradox.

question

Both stocks and bonds come under the term:

answer

"Securities"

question

Stocks represent:

answer

Ownership in a corporation

question

Bonds represent:

answer

Money lent to a corporation or a government.

question

When does a company pay dividends?

answer

When they want to

question

Common stock:

answer

Votes
Dividends Vary
Last in liquidation

question

Preferred stock:

answer

Does not vote
Set Dividend
Before Common in liquidation

question

The conclusion of Oligopoly:

answer

In equilibrium, MC may be unequal to MR because they may pursue goals other than profits.

question

The interest on a municipal bond is:

answer

Tax exempt.

question

Coupon rate/price of bond is judged by:

answer

the price you payed for the bond.

question

A $1000 bond with a coupon rate of 12.75% sells for $1030, what is the current yield?

answer

$127,50/1030 = 12.379

question

Before January 2006, a member of the NYSE had to buy his/her membership or seat. On September 29, 2004, a seat on the exchange went for

answer

1.2 million and today seat holders are called shareholders in the NYSE

question

Supply and Demand

answer

sets prices for stock

question

Dealer owns stock broker does not, but both

answer

sell stock.

question

Types of stock orders to give your broker:

answer

1. At the market--buy it at the best price you can
2. Limit order - specifies price
3. Odd-lot-order - an order to buy or sell less than 100 shares.

question

Backward Integration

answer

Buying supply sources.

question

Forward integration

answer

Buying storage/gas tankard etc.

question

If you dont regulate for WTU where MC = MR then

answer

1. Ideal output
2. Av cost and normal profit

question

The kink demand curve explains why

answer

Prices are so sticky at Oligopoly

question

Why is it elastic above and then inelastic below the kink demand curve?

answer

Because your rivals will ignore a price increase but follow a price cut.

question

Monopolistic competition describes most

answer

American Businesses

question

The company takes their own

answer

Plowback

question

The interest printed on the front of the bond is the

answer

coupon rate.

question

When interest rates go up Bond prices go

answer

down.

question

What is the best way to minimize your risk in the stock market?

answer

Have a diversified portfolio.

question

who regulates the stock market?

answer

The SCC

question

All stock exchanges are:

answer

Secondary

question

A special type of bank could be a:

answer

Investment bank.

question

answer

Greenmailing.

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