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ECO202

question
Refer to Figure 12.1. Assume the firms have formed a cartel. If the cartel is maximizing profits, the cartel's profits are
answer
$1,080.
question
If an insecure monopolist needs to determine what strategy will be best to prevent a second firm from entering the market, what could be the key variable to use when determining the best strategy?
answer
minimum entry quantity
question
Refer to Figure 12.8. If both firms follow their dominant strategies, Firm A will earn profits equal to
answer
$200.
question
The Nash equilibrium is an outcome of a game
answer
when each player is doing the best he or she can, given the actions of the other players.
question
Refer to Table 12.1. The four-firm concentration ratio of the cigarette industry is equal to
answer
71%.
question
A profit-maximizing firm will choose the level of advertisements such that
answer
the marginal cost of advertising is equal to the marginal benefit from advertising.
question
Under price leadership, when firm A suddenly drops its price, what could its competitors interpret by the drop in price?
answer
Firm A observed a change in demand or production.
question
Assume that firms in an oligopoly are currently colluding to set price and output to maximize total industry profit. If the oligopolies are forced to stop colluding, the price charged by the oligopolies would ________ and the total output produced will ________.
answer
decrease; increase
question
A single firm selling its output in a contestable market can raise its prices and
answer
give other firms the incentive to enter that market.
question
A single firm selling its output in a contestable market will
answer
be threatened constantly by the entry of new firms.
question
For monopolistically competitive firms in long-run equilibrium,
answer
at the profit-maximizing quantity, the demand curve must be tangent to the average total cost curve.
question
Which type of profit-maximizing firm will choose to produce where price equals marginal cost?
answer
perfect competition
question
Refer to Figure 11.1. If Trollio's T-shirts is in long-run equilibrium it is producing ________ silk-screened T-shirts and selling each T-shirt at a price of ________.
answer
50; $16
question
Recall the Application about the costs involved in opening a motel to answer the following question(s).


Recall the Application. Which of the following is NOT required to operate a Motel 6 franchise?
answer
earning an economic profit
question
Refer to Figure 11.2. In the long run, the monopolistic competitor would charge a price of ________ per unit.
answer
0A
question
Recall the Application about a South African consumer lender that offered different interest rates in loan offers via mass mailings to answer the following question(s).


According to the Application, the number of ________ who accepted a particular loan offer from the mass mailings increased when the offer letter included the picture of a ________.
answer
men; woman rather than the picture of a man
question
One key difference between profit-maximizing firms in monopolistic competition versus perfect competition is that
answer
monopolistically competitive firms charge a price greater than marginal revenue.
question
As a result of product differentiation, a firm in a monopolistically competitive market
answer
always has some market power.
question
Refer to Figure 11.2. In the long run, the monopolistic competitor would generate total revenue equal to the area
answer
0AFD.
question
In a monopolistically competitive industry, there are many firms because
answer
there are relatively small economies of scale.
question
If the five-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal share of the market, the Herfindahl-Hirschman Index is
answer
2,000
question
Refer to Figure 12.3. The decision tree shows the payoffs for two firms based on the strategies they choose. If they agree to collude and hold prices at $10, and both stand by the agreement, each will earn profits of $5 million. If one firm cheats and the other does not, the firm that cheats will earn profits of $8 million and the other firm will have losses of $2 million. If they both cheat and cut prices, they will each earn profits of only $2 million. If both firms follow their dominant strategies, Firm B's profits will be
answer
$2 million.
question
Refer to Figure 12.10. The data in the boxes are the annual profits for each company whether they choose to advertise or not. If Lil Box decides not to advertise,
answer
Big Box should advertise.
question
Refer to Figure 11.2. In the long run, the monopolistic competitor would generate total cost equal to the area
answer
0AFD.
question
Firms in monopolistic competition differentiate their products through
answer
physical characteristics.
question
Refer to Figure 11.2. In the long run, the monopolistic competitor would generate total revenue equal to the area
answer
0AFD.
question
In monopolistic competition, firms can have some market power based on the fact that
answer
they produce differentiated goods.
question
A profit-maximizing firm will choose the level of advertisements such that
answer
the marginal cost of advertising is equal to the marginal benefit from advertising
question
Recall the Application about how Microsoft responds to the threat of potential competitors to answer the following question(s).


Recall the Application. Which of the following best represents the way Microsoft keeps other firms from entering the market?
answer
Microsoft uses limit pricing to deter entry.
question
The big advantage to consumers of product differentiation is that it
answer
provides variety.
question
Oligopoly is a market
answer
with a few firms and the actions of one firm have a large impact on the others.
question
Explicit price fixing was outlawed by the ________ Act.
answer
Sherman Antitrust
question
Which of the following industries was NOT charged with price fixing?
answer
none of the above
question
Suppose four firms in the airline industry have gotten together and formed a cartel. Which of the following is true?
answer
The firms will produce where marginal cost is equal to marginal revenue.
question
What is one way that firms can overcome the duopolists' dilemma and promote cartel pricing?
answer
One firm can guarantee it will match a lower price of a competitor.
question
As a result of product differentiation, a firm in a monopolistically competitive market
answer
always has some market power.
question
By using celebrities to promote a product, a firm is attempting to
answer
all of the above
question
If a firm in a monopolistically competitive market uses advertising to lower the price elasticity of demand for its product,
answer
it will likely increase its price.
question
In the long run, which two curves are tangent for a firm in monopolistic competition?
answer
average total cost and demand
question
In the short run in monopolistic competition there can be
answer
economic profits, losses, or the firm can break even
1 of 40
question
Refer to Figure 12.1. Assume the firms have formed a cartel. If the cartel is maximizing profits, the cartel's profits are
answer
$1,080.
question
If an insecure monopolist needs to determine what strategy will be best to prevent a second firm from entering the market, what could be the key variable to use when determining the best strategy?
answer
minimum entry quantity
question
Refer to Figure 12.8. If both firms follow their dominant strategies, Firm A will earn profits equal to
answer
$200.
question
The Nash equilibrium is an outcome of a game
answer
when each player is doing the best he or she can, given the actions of the other players.
question
Refer to Table 12.1. The four-firm concentration ratio of the cigarette industry is equal to
answer
71%.
question
A profit-maximizing firm will choose the level of advertisements such that
answer
the marginal cost of advertising is equal to the marginal benefit from advertising.
question
Under price leadership, when firm A suddenly drops its price, what could its competitors interpret by the drop in price?
answer
Firm A observed a change in demand or production.
question
Assume that firms in an oligopoly are currently colluding to set price and output to maximize total industry profit. If the oligopolies are forced to stop colluding, the price charged by the oligopolies would ________ and the total output produced will ________.
answer
decrease; increase
question
A single firm selling its output in a contestable market can raise its prices and
answer
give other firms the incentive to enter that market.
question
A single firm selling its output in a contestable market will
answer
be threatened constantly by the entry of new firms.
question
For monopolistically competitive firms in long-run equilibrium,
answer
at the profit-maximizing quantity, the demand curve must be tangent to the average total cost curve.
question
Which type of profit-maximizing firm will choose to produce where price equals marginal cost?
answer
perfect competition
question
Refer to Figure 11.1. If Trollio's T-shirts is in long-run equilibrium it is producing ________ silk-screened T-shirts and selling each T-shirt at a price of ________.
answer
50; $16
question
Recall the Application about the costs involved in opening a motel to answer the following question(s).


Recall the Application. Which of the following is NOT required to operate a Motel 6 franchise?
answer
earning an economic profit
question
Refer to Figure 11.2. In the long run, the monopolistic competitor would charge a price of ________ per unit.
answer
0A
question
Recall the Application about a South African consumer lender that offered different interest rates in loan offers via mass mailings to answer the following question(s).


According to the Application, the number of ________ who accepted a particular loan offer from the mass mailings increased when the offer letter included the picture of a ________.
answer
men; woman rather than the picture of a man
question
One key difference between profit-maximizing firms in monopolistic competition versus perfect competition is that
answer
monopolistically competitive firms charge a price greater than marginal revenue.
question
As a result of product differentiation, a firm in a monopolistically competitive market
answer
always has some market power.
question
Refer to Figure 11.2. In the long run, the monopolistic competitor would generate total revenue equal to the area
answer
0AFD.
question
In a monopolistically competitive industry, there are many firms because
answer
there are relatively small economies of scale.
question
If the five-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal share of the market, the Herfindahl-Hirschman Index is
answer
2,000
question
Refer to Figure 12.3. The decision tree shows the payoffs for two firms based on the strategies they choose. If they agree to collude and hold prices at $10, and both stand by the agreement, each will earn profits of $5 million. If one firm cheats and the other does not, the firm that cheats will earn profits of $8 million and the other firm will have losses of $2 million. If they both cheat and cut prices, they will each earn profits of only $2 million. If both firms follow their dominant strategies, Firm B's profits will be
answer
$2 million.
question
Refer to Figure 12.10. The data in the boxes are the annual profits for each company whether they choose to advertise or not. If Lil Box decides not to advertise,
answer
Big Box should advertise.
question
Refer to Figure 11.2. In the long run, the monopolistic competitor would generate total cost equal to the area
answer
0AFD.
question
Firms in monopolistic competition differentiate their products through
answer
physical characteristics.
question
Refer to Figure 11.2. In the long run, the monopolistic competitor would generate total revenue equal to the area
answer
0AFD.
question
In monopolistic competition, firms can have some market power based on the fact that
answer
they produce differentiated goods.
question
A profit-maximizing firm will choose the level of advertisements such that
answer
the marginal cost of advertising is equal to the marginal benefit from advertising
question
Recall the Application about how Microsoft responds to the threat of potential competitors to answer the following question(s).


Recall the Application. Which of the following best represents the way Microsoft keeps other firms from entering the market?
answer
Microsoft uses limit pricing to deter entry.
question
The big advantage to consumers of product differentiation is that it
answer
provides variety.
question
Oligopoly is a market
answer
with a few firms and the actions of one firm have a large impact on the others.
question
Explicit price fixing was outlawed by the ________ Act.
answer
Sherman Antitrust
question
Which of the following industries was NOT charged with price fixing?
answer
none of the above
question
Suppose four firms in the airline industry have gotten together and formed a cartel. Which of the following is true?
answer
The firms will produce where marginal cost is equal to marginal revenue.
question
What is one way that firms can overcome the duopolists' dilemma and promote cartel pricing?
answer
One firm can guarantee it will match a lower price of a competitor.
question
As a result of product differentiation, a firm in a monopolistically competitive market
answer
always has some market power.
question
By using celebrities to promote a product, a firm is attempting to
answer
all of the above
question
If a firm in a monopolistically competitive market uses advertising to lower the price elasticity of demand for its product,
answer
it will likely increase its price.
question
In the long run, which two curves are tangent for a firm in monopolistic competition?
answer
average total cost and demand
question
In the short run in monopolistic competition there can be
answer
economic profits, losses, or the firm can break even

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