question
What is true with firms that engage in cooperative behavior instead of noncooperative behavior?
answer
They earn more profit.
question
Cooperative behavior equals...
answer
More profit.
question
Nash Equilibrium is...
answer
An outcome in which decision makers choose their dominant strategy and each has no incentive to independently change his or her strategy.
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Nash Equilibrium happens when...
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No one has incentive to change.
question
tit-for-tat strategy
answer
a repeated game strategy in which a player responds in kind to an opponent's play.
question
Repeated Game strategy
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A situation in which a game is played a (potentially infinite) number of times, with the players choosing a strategy each time.
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first-mover advantage
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The advantage that a player receives by moving first in a sequential game, and thereby influencing the set of possible outcomes.
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Game Tree
answer
A mapping tool that shows the available strategies to players engaged in a sequential game as well as the potential outcomes received by those players.
question
What is true with monopolistic competition?
answer
Firms may advertise to increase demand for their product.
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Why does a monopolistically competitive firm have a downward-sloping demand curve?
answer
It reflects product differentiation.
question
The steeper product differentiation is...
answer
The more power it has.
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The flatter product differentiation is...
answer
The less power it has.
question
What is the Nash equilibrium in the classic prisoners' dilemma?
answer
Both individuals confess.
question
Classic Prisoner's Dilemma
answer
In each box, the number above the diagonal is prisoner A's outcome. Thus, if both prisoners confess, both get five years. If neither confesses, each gets a year. If one confesses, that prisoner is set free in exchange for evidence used to convict the other of a crime bringing a 10-year sentence.
question
What situation below is not true for monopolistic competition but is true for a monopoly?
answer
The firm will earn positive economic profits in the long run.
question
Why are cartels hard to maintain?
answer
There is incentive for firms to cheat (tit-for-tat strategy).
question
A monopolistically competitive firm should produce where ____________________ to maximize profits.
answer
marginal revenue equals marginal cost
question
Every firm follows...
answer
MR=MC
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A ______________________ is the outcome of a strategic choice.
answer
Payoff
question
In what situation below does a dominant strategy exist?
answer
When a player makes the same choice regardless of the action of the other players, and this occurs for all players.
question
Which situation below is not true for monopolistic competition but is true for perfect competition?
answer
The firm will produce at a point where price equals marginal cost.
question
Pepsi and Coke have agreed to fix their prices at a certain level. What is this an example of?
answer
Collusion
question
Collusion
answer
secret agreement or cooperation, and it is illegal
question
The marginal cost of purchasing additional resources...
answer
can remain constant, increase, or decrease.
question
Which of the following events would shift the marginal revenue product of Hannah's root beer factory workers to the left?
answer
The price of root beer falls from $1.00 per bottle to $0.75 per bottle
question
MRP=
answer
Change in total revenue/change in quanity or MP*P
question
For MRP...
answer
Left is less profit.
question
How does a firm decide whether to hire an additional worker?
answer
comparing the cost of hiring the worker to the associated benefit.
question
For firms renting capital in a perfectly competitive market, as the amount of capital utilized increases, the firm will experience...
answer
diminishing marginal productivity of capital.
question
diminishing marginal product
answer
the marginal product of an input declines as the quantity of the input increases.
question
Which of the following scenarios would lead to an increase in the demand for mixers at Henry's bread bakery?
answer
The market price of bread increases.
question
The downward-sloping demand curve of a monopolistic competitor...
answer
reflects some level of control over its own price.
question
A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating...
answer
with a loss.
question
If MR=MC and P>ATC then the firm is...
answer
making money
question
Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. Based on this information, we can say that...
answer
profits will be increased by hiring fewer workers.
question
If MRP=MRC then its...
answer
Maximizing profits
question
Suppose the demand for strawberries rises sharply, resulting in an increased price for strawberries. As it relates to strawberry pickers, we could expect the...
answer
MRP curve to shift to the right.
question
A major distinction between a monopolistically competitive firm and an oligopolistic firm is that...
answer
a recognized interdependence exists between firms in one industry but not in the other.
question
If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?
answer
the pure monopoly model
question
Pure monopoly means...
answer
a single firm producing a product for which there are no close substitutes.
question
Which statements concerning monopolistic competition are true?
answer
-In the long run P = AC > MC
-Firms may experience losses in the short run
-Firms differentiate their products, but the products are relatively substitutable.
-Firms earn accounting profit only in the long run
-Firms may experience losses in the short run
-Firms differentiate their products, but the products are relatively substitutable.
-Firms earn accounting profit only in the long run
question
Which cannot be a characteristic of an oligopolistic industry?
answer
a perfectly elastic firm demand curve
question
Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because...
answer
product differentiation allows each firm some degree of monopoly power.
question
Which industry would be best characterized as monopolistically competitive?
answer
web design consulting
question
A unique feature of an oligopolistic industry is...
answer
mutual interdependence.
question
Pepsi Co. and Coca Cola decide to merge. Which antitrust act is being violated?
answer
the Clayton Act
question
The Clayton Act...
answer
Made illegal mergers and acquisitions that lessened competition.
question
The Sherman Act...
answer
Made illegal contracts, organizations, or actions restricting trade.
question
Federal Trade Commission Act...
answer
-Established federal trade commission
-Outlawed unfair methods of competition
-Outlawed unfair/deceptive acts or practices
-Outlawed unfair methods of competition
-Outlawed unfair/deceptive acts or practices
question
A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost is $15, marginal cost is $13, and marginal revenue is $13. In the short run this firm should...
answer
make no change in the level of output.
question
Harry owns a barbershop and charges $13 per haircut. By hiring one barber at $11 per hour, the shop can provide 20 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 38 haircuts per day. The MP of the second barber is...
answer
18 haircuts.
question
The consumer Wi-Fi-service providers' market is best described as a(n)...
answer
oligopoly.
question
If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes...
answer
the industry would more closely approximate pure competition.
question
As the number of firms increases...
answer
Homogeneity also increases.
question
Apple and Samsung agree to stop undercutting each other's phone prices. Which antitrust act is being violated?
answer
the Sherman Act
question
If an industry has a Herfindahl Index of 10,000, then...
answer
the industry is a single firm.
question
The Herfindahl Index goes up to 10,000, this means...
answer
the higher the HI then more power.
question
At long-run equilibrium in monopolistic competition, there is...
answer
neither allocative nor productive efficiency.
question
An increase in which of the following factors does not increase the incentive to cheat within a cartel?
answer
economic performance and industry sales.
question
If the four largest cell service providers sales make up 56 percent of total sales in the entire industry, then the industry is considered to be...
answer
an oligopoly.
question
Collusion among oligopolistic firms...
answer
becomes more difficult if there were fewer firms in the group.
question
P=MR=MC is only in...
answer
perfect competition.
question
Labor equals...
answer
wage
question
Capital equals...
answer
rental rate
question
Shift is a...
answer
non-price change.
question
Collude equals...
answer
pure monopoly.
question
MP is the...
answer
Extra product available to sell.
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