ECON 102 Midterm #3

Q: In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in:

positive economic profits for firms, which will attract new firms, which in turn will result in a reduction in the price.

Q: In contrast to perfect competition, a:

monopoly produces less at a higher price

Q: De Beers became a monopoly by:

establishing control over diamond mines

Q: A monopolistically competitive industry is made up of:

many firms producing a differentiated product

Q: After the first unit sold, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold because of:

a downward sloping demand curve

Q: Which of the following statements about the differences between monopoly and perfect competition is incorrect?

Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

Q: Which of the following is a barrier to entry?

control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

question

The break-even price for a perfectly competitive firm is equal to:

answer

the minimum value of average total cost

question

If the long-run market supply curve for a perfectly competitive market is horizontal, then this industry is one that exhibits:

answer

constant costs

question

Marginal revenue is a firm's:

answer

increase in total revenue when it sells an additional unit of output

question

Tony runs Read Economic Reports. If Tony finds that the cost of completing an additional report is $100 and someone offers him $125 to complete this additional report, Tony should:

answer

complete the additional report

question

In the short run, a perfectly competitive firm produces output and earns zero economic profit if:

answer

P=ATC

question

In the short run, a perfectly competitive firm produces output and incurs an economic loss if:

answer

AVC<P<ATC

question

In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in:

answer

positive economic profits for firms, which will attract new firms, which in turn will result in a reduction in the price.

question

Mikail's perfectly competitive camera memory card-producing factory is making positive economic profits. If the price of memory cards is $9, Mikail's output is 3,000 cards a month, and his monthly average total cost is $7, what are his monthly profits?

answer

$6,000

question

A firm's total output times the price at which it sells that output is:

answer

total revenue

question

A perfectly competitive firm is a:

answer

price-taker

question

The land you own has the only known source of aloe needed to make anti-itch lotion. In this case, your monopoly results from which of the following?

answer

ownership of scarce inputs

question

In contrast to perfect competition, a:

answer

monopoly produces less at a higher price

question

De Beers became a monopoly by:

answer

establishing control over diamond mines

question

A monopolistically competitive industry is made up of:

answer

many firms producing a differentiated product

question

In 1999, a judge declared that Microsoft was a monopolist. Assuming that it is maximizing its profits at its current level of output, we may conclude that if Microsoft were to increase its price, its total revenue would:

answer

fall

question

After the first unit sold, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold because of:

answer

a downward sloping demand curve

question

Which of the following statements about the differences between monopoly and perfect competition is incorrect?

answer

Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

question

Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor. You have high fixed costs due to the quantity of capital used to build the jets. There's decreasing average cost for all levels of demand. In this case, your monopoly would result from which of the following?

answer

economies of scale

question

Which of the following is a barrier to entry?

answer

control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

question

Firms in which of the following market structures have the most market power?

answer

monopoly

question

In the game in Scenario 13.3, the equilibrium outcome:

answer

is for Moto to offer a CD changer and Zport to offer low profile tires

question

A major application of the Sherman Antitrust Act was in ________ against ________.

answer

1911; Standard Oil

question

A ________ occurs if all players in a game play their best strategies given what their competitors do.

answer

Nash equilibrium

question

An extreme case of oligopoly in which firms collude to raise joint profits is known as a:

answer

cartel

question

Airlines are prone to price wars because:

answer

most fliers choose airlines on the basis of schedule and price

question

An industry with two firms producing is generally called:

answer

duopoly

question

Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. Which of the following is the outcome of the dominant strategy without cooperation?

answer

both confess

question

Maximization of joint profits is most likely when firms are:

answer

duopolists who collude

question

Which of the following is true for the game in Scenario 13.3?

answer

Zport's dominant strategy is the low profile tires

question

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary believes he faces a kinked demand curve. This means Gary thinks if he lowers his price, then Frank will ________, and if he raises his price, Frank will ________.

answer

lower his price; not raise his price

question

Suppose Sarah's pottery studio is charging the market price, which is just higher than her minimum average total cost. This means that Sarah:

answer

is earning a small economic profit.

question

During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. In the short run, Alex will shut down his lawn-mowing service rather than continue mowing grass if:

answer

the total revenues can't cover the total variable costs.

question

If a perfectly competitive firm can sell a bushel of soybeans for $40 and it has an average variable cost of $50 per bushel and the marginal cost is $52 per bushel, the firm should:

answer

cut output to zero

question

The shut-down price is:

answer

the minimum of the AVC curve

question

Tony runs Read Economic Reports. If Tony finds that the cost of completing an additional report is $100 and someone offers him $125 to complete this additional report, Tony should:

answer

complete the additional report

question

The addition to the total revenue from selling one more unit of the good is:

answer

marginal revenue

question

Under which condition would the firm be incurring a loss?

answer

price is below average total cost

question

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the information given, we can conclude that in the long run we will observe:

answer

firms leaving the industry

question

In the short run, a perfectly competitive firm produces output and breaks even if:

answer

the firm produces the quantity at which P = ATC

question

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the typical firm is likely to begin:

answer

earning an economic profit

question

Control of a scarce resource or input, economies of scale, technological superiority, and government-created barriers are forms of:

answer

barriers to entry

question

Kellogg, General Mills, Post and Quaker Oats dominate the ready-to-eat cereal market. This industry has consistently showed profits in the long run, and is difficult to enter due to brand proliferation. The ready-to-eat cereal industry is an example of what type of market structure?

answer

Oligopoly

question

To practice effective price discrimination, a monopolist must be able to:

answer

prevent the resale of goods among groups of buyers

question

In contrast to perfect competition, a:

answer

monopoly produces less at a higher price

question

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with:

answer

the higher price elasticity of demand

question

Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:

answer

$19

question

If a monopolist is producing a quantity that generates MC < MR, then profit:

answer

can be increased by increasing production

question

Which of the following is not a barrier to entry?

answer

a ban on certain kinds of advertising

question

Refer to Table 12.2. Jeri and Tom are arrested for having committed a crime. They are being interrogated individually and need to decide if they should confess or not confess. The police have enough information to put them in jail for 5 years. They also know the pair have committed a more egregious crime but without the help of one of the suspects they will not be able to convict them on this charge. The first number in each cell refers to the number of years of prison time Jeri will receive if she confesses or does not confess and the second number in each cell refers to the number of years of prison time Tom will receive if he confesses or does not confess. The dominant strategy for Jeri is to ________ and the dominant strategy for Tom is to ________.

answer

confess; confess

question

Which of the following is most likely to be observed when firms engage mainly in non-price competition?

answer

advertising and product differentiation

question

Which of the following factors increases the likelihood that oligopolists collude?

answer

a firm and its rivals are currently operating at maximum productive capacity

question

Refer to Figure 12.7 The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy.In the Nash equilibrium:

answer

both firms would charge a low price

question

In the game in Scenario 13.3, the equilibrium outcome:

answer

is for Moto to offer a CD changer and Zport to offer low-profile tires

question

The short-run supply curve for a perfectly competitive firm is:

answer

the marginal cost curve about the shut-down price

question

Which of the following is true?

answer

price and marginal revenue are the same in perfect competition

question

If a competitive firm can sell a bushel of soybeans for $25 and it has an average variable cost of $24 per bushel and the marginal cost is $26 per bushel, the firm should:

answer

reduce output

question

If a perfectly competitive firm sells 300 units of output at a market price of $1 per unit, its marginal revenue is:

answer

question

Suppose Sarah's pottery studio is charging the market price, which is just higher than her minimum average total cost. This means that Sarah:

answer

is earning a small economic profit

question

Under which condition would the firm be incurring a loss?

answer

price is below average total cost

question

In the long run, each firm in a perfectly competitive industry will:

answer

earn only enough to cover the opportunity costs of the resources used in production

question

Suppose that some firms in a perfectly competitive industry earn negative economic profits. In the long run, the:

answer

industry supply curve will shift to the left

question

Ashley, who makes knitted caps, determines that her marginal cost of producing one more knitted cap is equal to $10. A consumer offers her $12 if she sells one more knitted cap to her. Ashley will:

answer

sell the additional knitted cap, since the marginal revenue is greater than the marginal cost for the unit

question

The shut-down price is:

answer

the minimum of the AVC curve

question

Marginal revenue for a monopolist is:

answer

less than price

question

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

answer

market power

question

Compared to a perfectly competitive industry, a monopolist:

answer

charges a higher price

question

Which of the following statements about the differences between monopoly and perfect competition is incorrect?

answer

Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

question

Which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect?

answer

In the long run, economic profits are driven to zero in both a monopoly and a perfectly competitive market.

question

An oligopoly is characterized as an industry in which:

answer

there are few firms, each producing a differentiated or similar product

question

An industry with a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is:

answer

monopoly

question

Which of the following is true?

answer

a monopoly firm is a price-maker

question

A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down. Compared to the condition before the increase in marginal costs, the monopolist will ________ its price and ________ its level of production.

answer

raise; decrease

question

One government policy for dealing with a natural monopoly is to:

answer

impose a price ceiling to reduce economic profit

question

Maximization of joint profits is most likely when firms are:

answer

duopolists who collude

question

Consider the following game in which two firms decide how much of a homogeneous good to produce. The annual profit payoffs for each firm are stated in the cell of the game matrix, and Firm A's payoffs appear first in the payoff pairs:

answer

both firms produce low levels of output

question

Refer to Figure 12.7. The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy. If both firms follow their individual dominant strategy:

answer

both will earn $150 daily profit

question

A tit-for-tat strategy is one in which oligopolies

answer

cooperate as long as other members cooperate, but if anyone cheats, they cut the price until the cheater reverts to cooperation

question

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. The large barriers to entry in the Smalltown gas industry explain why Gary and Frank:

answer

can earn an economic profit in the long run

question

In an oligopoly:

answer

firms recognize their interdependence

question

Refer to Table 14.2. Firm Aʹs dominant strategy is

answer

to advertise

question

Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and B) and two pricing strategies (high and low). Which of the following is the outcome of the dominant strategy without cooperation?

answer

both firm A and firm B choose the low price

question

Refer to Figure d. What is the Nash equilibrium in table above?

answer

Travis south, Darren west

question

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.

answer

yes the firms can simplicity collude and agree to charge a higher price

question

A perfectly competitive industry is said to be efficient because the:

answer

average total cost of production of industry's output in minimized

question

In a long-run equilibrium, economic profits in a perfectly competitive industry are:

answer

zero

question

If firms are experiencing economic losses in the short run, firms will leave the industry, industry output will ________, and economic losses will ________ in the long run.

answer

fall; fall

question

A perfectly competitive firm's short-run supply curve is its:

answer

marginal cost curve above the average variable cost curve

question

In perfect competition:

answer

each individual firm will have a small market share

question

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:

answer

greater than average total cost

question

Han and Micah have just started their own business-a food truck that sits on city streets and sells specialty Vietnamese food. The start-up costs were low, and there are lots of other Vietnamese food trucks in the city, but Han's cooking is very special. People come from all over the city to buy their food, so they can charge a slightly higher price than their competitors. What type of market structure do they face?

answer

monopolistic competition

question

In perfect competition:

answer

the industry output is a standardized product

question

If the price is less than the average variable cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

answer

shut down production

question

In the short run, if P = ATC, a perfectly competitive firm:

answer

produces output and earns zero economic profit

question

For a monopolist, the market demand curve:

answer

is also the demand for the monopolist's product

question

The De Beers company is described as a monopolist in the production of:

answer

diamonds

question

Price discrimination is the practice of:

answer

charging different prices to buyers of the same good

question

When a firm finds that its ATC of production decreases as it increases production, this firm is said to be experiencing:

answer

economies of scale

question

Control of a scarce resource or input, economies of scale, technological superiority, and government-created barriers are forms of:

answer

barriers to entry

question

Sadia wants to practice price discrimination in her bakery. Which of the following techniques should Sadia not use?

answer

the same price for all consumers for freshly baked goods

question

The practice of selling the same product at different prices in different markets, without corresponding differences in costs, is:

answer

price discrimination

question

A firm that has economies of scale:

answer

over the entire range of output demanded is called a natural monopoly

question

Natural monopolies include all of the following except:

answer

a diamond mining company

question

Suppose that the Yankee Cap Company is a profit-maximizing firm that has a monopoly in the production of baseball caps. The firm sells its baseball caps for $25 each. For this information, we can assume that the Yankee Cap Company is producing a level of output at which:

answer

marginal cost equals marginal revenue

question

Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. If Bob confesses, what is the best strategy for Harry?

answer

confess

question

A strategy that is the same regardless of the action of the other player in a game is said to be a:

answer

dominant strategy

question

Which of the following is a form of strategic behavior defined as behavior intended to influence the future actions of other players?

answer

tit-for-tat strategy

question

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. The large barriers to entry in the Smalltown gas industry explain why Gary and Frank:

answer

can earn an economic profit in the long run

question

In a Nash equilibrium,

answer

players may or may not have dominant strategies

question

Refer to Figure e. If Brandon watches the Red Sox, what is Allie's best response?

answer

watch the Red Sox

question

Which of the following scenarios best describes an oligopolistic industry?

answer

Coca-cola and pepsi sell most of the soft drinks consumed around the world

question

Engaging in price competition or Bertrand behavior will most likely mean oligopolists:

answer

will likely end up behaving like a perfectly competitive industry

question

Refer to Figure c. What is the Nash equilibrium in table above (Figure c)?

answer

Kate squeal, Alice squeal

question

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel to raise the price of gasoline. The total industry profits are highest when ________ and Gary's profits are highest when ________.

answer

neither firm cheats on the agreement; Gary cheats on the agreement and Frank does not cheat

question

A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should:

answer

increase output

question

If firms are making positive economic profits in the short run, then in the long run:

answer

firms will enter the industry

question

In the short run, a perfectly competitive firm produces output and earns an economic profit if:

answer

P<ATC

question

In perfect competition, a change in fixed cost:

answer

will encourage entry or exit in the long run so that price will change enough to leave firms earning zero profits

question

The addition to the total revenue from selling one more unit of the good is:

answer

marginal revenue

question

The price received by a firm in a perfectly competitive market:

answer

is equal to the market price

question

If economic profits exist in perfect competition, then firms will enter in the long run because of easy entry, the ________ curve will shift to the right, and ________ in the market will ________.

answer

supply; output; increase

question

A firm's total output times the price at which it sells that output is:

answer

total revenue

question

In the short run, a perfectly competitive firm produces output and incurs an economic loss if:

answer

AVC<P<ATC

question

Price in a perfectly competitive industry:

answer

is always equal to marginal revenue for the firm

question

The main reason a monopoly engages in price discrimination is that:

answer

doing so increases its profits

question

If a monopoly market structure was transformed into a perfectly competitive one, one would find that price would ________ and output would ________.

answer

fall; increase

question

When firms price-discriminate, people with ________ price elasticity of demand will pay ________ prices relative to those purchasing the same product who have a ________ price elasticity of demand.

answer

lower; higher; higher

question

The municipal swimming pool charges lower entrance fees to local residents than to nonresidents. Assuming that this pricing strategy increases the profits of the pool, we can conclude that nonresidents must have a ________ for swimming at the pool than residents.

answer

less elastic demand

question

Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. Your monopoly would result from:

answer

increasing returns to scale

question

Suppose that a monopoly firm is required to pay a new annual license fee just for the privilege of doing business in its city and that the fee is somewhat less than the economic profit the firm is now earning. In response to the increase in fees, the firm will:

answer

not change its price

question

Suppose the price elasticity of demand for coffee at the CoffeeBarn equals 1.71 for women and 0.55 for men. A successful price discrimination strategy would lead to:

answer

higher prices for man and lower prices for women as long as the CoffeeBean could prevent women from reselling drinks to men

question

The demand curve for a monopoly is:

answer

above the MR curve

question

An increase in the fixed costs of a monopoly firm would ________ price and ________ quantity in the short run.

answer

not change; not change

question

A natural monopoly exists when:

answer

economies of scale provide large cost advantages to having one firm produce the industry's output

question

OPEC is a(n) ________that includes ________.

answer

legal cartel; includes 13 national governments

question

Which of the following would make it difficult for oligopolists to collude?

answer

there are few buyers in the market

question

Refer to Table 14-1. Let's suppose the game starts with each firm adhering to its original budget so that Godrickporter earns a profit of $6,000 and Star Connections earns a profit of $12,000. Is there an incentive for any one firm to increase its advertising budget?

answer

Yes, Godrickporter has an incentive to increase its advertising budget, but Star Connections does not.

question

Which of the following is TRUE for the game in Scenario 13.4?

answer

neither company has a dominant strategy

question

Refer to Figure 12.7 The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy.In the Nash equilibrium:

answer

both firms would charge a low price

question

Oligopoly is a market structure that is characterized by a ________ number of ________ firms that produce ________ products.

answer

small; interdependent; identical or differentiated

question

Refer to Table 14-3. Is there a dominant strategy for Nigeria and, if so, what is it?

answer

yes, the dominant strategy is to produce a high output

question

What is a prisoner's dilemma?

answer

a game in which players act in rational, self-interested ways that leave everyone worse off

question

Suppose two firms are in a game situation, and they each must decide on a strategy regarding whether to select a high price or a low price. Profits for a firm are highest when it selects a low price, while the other selects a high price; profits are lowest if one selects a high price, while the other selects a low price; profits are in between when both select low prices; and profits are slightly higher when both select high prices. In the absence of collusion we expect

answer

both to select low prices

question

In the short run, if P > ATC, a perfectly competitive firm:

answer

produces output and earns an economic profit

question

In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in:

answer

positive economic profits for firms, which ill attract new firms, which in turn will result in a reduction in the price

question

Under which condition would the firm be incurring a loss?

answer

price is below average total cost

question

Lilly is the price-taking owner of an apple orchard. The price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect:

answer

lower apple prices due to the entry of new firms

question

Lilly is the price-taking owner of an apple orchard. The price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect:

answer

variable cost

question

answer

firms leaving the industry

question

Which of the following is not a characteristic of a perfectly competitive industry?

answer

there are differentiated products

question

In the short run, a firm will produce as long as the price is greater than its:

answer

AVC

question

If a perfectly competitive gardening shop sells 30 evergreen bushes at a price of $10 per bush, its marginal revenue is:

answer

$10

question

Zoe's Bakery operates in a perfectly competitive industry. The variable costs at Zoe's Bakery increase, so all of the cost curves (with the exception of fixed cost) shift leftward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increase, Zoe's Bakery will ________ its price and ________ its level of production.

answer

do nothing to; decrease

question

A monopolist is likely to ________ and ________ than a comparable perfectly competitive firm.

answer

produce less; charge more

question

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can only charge $20,000 each. The price effect of selling the sixth motor home is:

answer

-$5,000

question

Price discrimination leads to a ________ price for consumers with a ________ demand.

answer

higher; less elastic

question

Which of the following statements is correct for a firm that can price-discriminate?

answer

It should adjust prices so that customers with price-elastic demand pay lower prices than those with inelastic demand.

question

You own a lemonade stand in a competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power?

answer

you own exclusive rights to harvest lemons from all domestic citrus orchards

question

The demand curve facing a monopolist is:

answer

downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm

question

If a monopolist is producing a quantity that generates MC > MR, then profit:

answer

can be increased by increasing price

question

Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect:

answer

price to rise, output to fall, consumer surplus to fall, producer surplus to rise, and deadweight loss to rise.

question

If your local government gave you the exclusive right to sell breakfast bagels in your community, your monopoly would result from:

answer

government-created barriers

question

In a monopoly in the long run:

answer

entry by other firms will not occur

question

Refer to Figure e. If Allie watches the Mets, what is Brandon's best response?

answer

watch the Mets

question

Refer to Figure d. In the game described in the figure above, Travis's dominant strategy is

answer

south

question

Which of the following is true about the game in Scenario 13.2?

answer

Both ABC and XYZ offer a rebate as a dominant strategy.

question

A situation in which one firm sets the price and other firms in the industry match it is known as:

answer

price leadership

question

Refer to Figure 12.7 The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy.In the Nash equilibrium:

answer

both firms would charge a low price

question

An industry that consists of two firms is:

answer

a duopoly

question

A cartel is

answer

a group of firms that enter into a formal agreement to fix prices to maximize joint profits.

question

Your economics professor has decided that your class will not be graded on a curve but on an absolute scale. Therefore, it is possible for every student in the class to get an "A." Your grade will not depend in any way on your classmates' performance. Based on this information, you decide that you should study economics three hours each day, regardless of what your classmates do. In the language of game theory, your decision to study three hours each day is:

answer

a dominant strategy

question

A strategy is dominant if

answer

It is a player's only best response, regardless of other players' choices

question

Which of the following scenarios best describes an oligopolistic industry?

answer

Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.

1 of 172

question

The break-even price for a perfectly competitive firm is equal to:

answer

the minimum value of average total cost

question

If the long-run market supply curve for a perfectly competitive market is horizontal, then this industry is one that exhibits:

answer

constant costs

question

Marginal revenue is a firm's:

answer

increase in total revenue when it sells an additional unit of output

question

Tony runs Read Economic Reports. If Tony finds that the cost of completing an additional report is $100 and someone offers him $125 to complete this additional report, Tony should:

answer

complete the additional report

question

In the short run, a perfectly competitive firm produces output and earns zero economic profit if:

answer

P=ATC

question

In the short run, a perfectly competitive firm produces output and incurs an economic loss if:

answer

AVC<P<ATC

question

In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in:

answer

positive economic profits for firms, which will attract new firms, which in turn will result in a reduction in the price.

question

answer

$6,000

question

A firm's total output times the price at which it sells that output is:

answer

total revenue

question

A perfectly competitive firm is a:

answer

price-taker

question

The land you own has the only known source of aloe needed to make anti-itch lotion. In this case, your monopoly results from which of the following?

answer

ownership of scarce inputs

question

In contrast to perfect competition, a:

answer

monopoly produces less at a higher price

question

De Beers became a monopoly by:

answer

establishing control over diamond mines

question

A monopolistically competitive industry is made up of:

answer

many firms producing a differentiated product

question

answer

fall

question

After the first unit sold, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold because of:

answer

a downward sloping demand curve

question

Which of the following statements about the differences between monopoly and perfect competition is incorrect?

answer

Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

question

answer

economies of scale

question

Which of the following is a barrier to entry?

answer

control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

question

Firms in which of the following market structures have the most market power?

answer

monopoly

question

In the game in Scenario 13.3, the equilibrium outcome:

answer

is for Moto to offer a CD changer and Zport to offer low profile tires

question

A major application of the Sherman Antitrust Act was in ________ against ________.

answer

1911; Standard Oil

question

A ________ occurs if all players in a game play their best strategies given what their competitors do.

answer

Nash equilibrium

question

An extreme case of oligopoly in which firms collude to raise joint profits is known as a:

answer

cartel

question

Airlines are prone to price wars because:

answer

most fliers choose airlines on the basis of schedule and price

question

An industry with two firms producing is generally called:

answer

duopoly

question

answer

both confess

question

Maximization of joint profits is most likely when firms are:

answer

duopolists who collude

question

Which of the following is true for the game in Scenario 13.3?

answer

Zport's dominant strategy is the low profile tires

question

answer

lower his price; not raise his price

question

Suppose Sarah's pottery studio is charging the market price, which is just higher than her minimum average total cost. This means that Sarah:

answer

is earning a small economic profit.

question

answer

the total revenues can't cover the total variable costs.

question

If a perfectly competitive firm can sell a bushel of soybeans for $40 and it has an average variable cost of $50 per bushel and the marginal cost is $52 per bushel, the firm should:

answer

cut output to zero

question

The shut-down price is:

answer

the minimum of the AVC curve

question

Tony runs Read Economic Reports. If Tony finds that the cost of completing an additional report is $100 and someone offers him $125 to complete this additional report, Tony should:

answer

complete the additional report

question

The addition to the total revenue from selling one more unit of the good is:

answer

marginal revenue

question

Under which condition would the firm be incurring a loss?

answer

price is below average total cost

question

answer

firms leaving the industry

question

In the short run, a perfectly competitive firm produces output and breaks even if:

answer

the firm produces the quantity at which P = ATC

question

answer

earning an economic profit

question

Control of a scarce resource or input, economies of scale, technological superiority, and government-created barriers are forms of:

answer

barriers to entry

question

answer

Oligopoly

question

To practice effective price discrimination, a monopolist must be able to:

answer

prevent the resale of goods among groups of buyers

question

In contrast to perfect competition, a:

answer

monopoly produces less at a higher price

question

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with:

answer

the higher price elasticity of demand

question

answer

$19

question

If a monopolist is producing a quantity that generates MC < MR, then profit:

answer

can be increased by increasing production

question

Which of the following is not a barrier to entry?

answer

a ban on certain kinds of advertising

question

answer

confess; confess

question

Which of the following is most likely to be observed when firms engage mainly in non-price competition?

answer

advertising and product differentiation

question

Which of the following factors increases the likelihood that oligopolists collude?

answer

a firm and its rivals are currently operating at maximum productive capacity

question

Refer to Figure 12.7 The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy.In the Nash equilibrium:

answer

both firms would charge a low price

question

In the game in Scenario 13.3, the equilibrium outcome:

answer

is for Moto to offer a CD changer and Zport to offer low-profile tires

question

The short-run supply curve for a perfectly competitive firm is:

answer

the marginal cost curve about the shut-down price

question

Which of the following is true?

answer

price and marginal revenue are the same in perfect competition

question

If a competitive firm can sell a bushel of soybeans for $25 and it has an average variable cost of $24 per bushel and the marginal cost is $26 per bushel, the firm should:

answer

reduce output

question

If a perfectly competitive firm sells 300 units of output at a market price of $1 per unit, its marginal revenue is:

answer

question

Suppose Sarah's pottery studio is charging the market price, which is just higher than her minimum average total cost. This means that Sarah:

answer

is earning a small economic profit

question

Under which condition would the firm be incurring a loss?

answer

price is below average total cost

question

In the long run, each firm in a perfectly competitive industry will:

answer

earn only enough to cover the opportunity costs of the resources used in production

question

Suppose that some firms in a perfectly competitive industry earn negative economic profits. In the long run, the:

answer

industry supply curve will shift to the left

question

Ashley, who makes knitted caps, determines that her marginal cost of producing one more knitted cap is equal to $10. A consumer offers her $12 if she sells one more knitted cap to her. Ashley will:

answer

sell the additional knitted cap, since the marginal revenue is greater than the marginal cost for the unit

question

The shut-down price is:

answer

the minimum of the AVC curve

question

Marginal revenue for a monopolist is:

answer

less than price

question

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

answer

market power

question

Compared to a perfectly competitive industry, a monopolist:

answer

charges a higher price

question

Which of the following statements about the differences between monopoly and perfect competition is incorrect?

answer

Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

question

Which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect?

answer

In the long run, economic profits are driven to zero in both a monopoly and a perfectly competitive market.

question

An oligopoly is characterized as an industry in which:

answer

there are few firms, each producing a differentiated or similar product

question

An industry with a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is:

answer

monopoly

question

Which of the following is true?

answer

a monopoly firm is a price-maker

question

answer

raise; decrease

question

One government policy for dealing with a natural monopoly is to:

answer

impose a price ceiling to reduce economic profit

question

Maximization of joint profits is most likely when firms are:

answer

duopolists who collude

question

answer

both firms produce low levels of output

question

Refer to Figure 12.7. The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy. If both firms follow their individual dominant strategy:

answer

both will earn $150 daily profit

question

A tit-for-tat strategy is one in which oligopolies

answer

cooperate as long as other members cooperate, but if anyone cheats, they cut the price until the cheater reverts to cooperation

question

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. The large barriers to entry in the Smalltown gas industry explain why Gary and Frank:

answer

can earn an economic profit in the long run

question

In an oligopoly:

answer

firms recognize their interdependence

question

Refer to Table 14.2. Firm Aʹs dominant strategy is

answer

to advertise

question

answer

both firm A and firm B choose the low price

question

Refer to Figure d. What is the Nash equilibrium in table above?

answer

Travis south, Darren west

question

answer

yes the firms can simplicity collude and agree to charge a higher price

question

A perfectly competitive industry is said to be efficient because the:

answer

average total cost of production of industry's output in minimized

question

In a long-run equilibrium, economic profits in a perfectly competitive industry are:

answer

zero

question

If firms are experiencing economic losses in the short run, firms will leave the industry, industry output will ________, and economic losses will ________ in the long run.

answer

fall; fall

question

A perfectly competitive firm's short-run supply curve is its:

answer

marginal cost curve above the average variable cost curve

question

In perfect competition:

answer

each individual firm will have a small market share

question

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:

answer

greater than average total cost

question

answer

monopolistic competition

question

In perfect competition:

answer

the industry output is a standardized product

question

If the price is less than the average variable cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

answer

shut down production

question

In the short run, if P = ATC, a perfectly competitive firm:

answer

produces output and earns zero economic profit

question

For a monopolist, the market demand curve:

answer

is also the demand for the monopolist's product

question

The De Beers company is described as a monopolist in the production of:

answer

diamonds

question

Price discrimination is the practice of:

answer

charging different prices to buyers of the same good

question

When a firm finds that its ATC of production decreases as it increases production, this firm is said to be experiencing:

answer

economies of scale

question

Control of a scarce resource or input, economies of scale, technological superiority, and government-created barriers are forms of:

answer

barriers to entry

question

Sadia wants to practice price discrimination in her bakery. Which of the following techniques should Sadia not use?

answer

the same price for all consumers for freshly baked goods

question

The practice of selling the same product at different prices in different markets, without corresponding differences in costs, is:

answer

price discrimination

question

A firm that has economies of scale:

answer

over the entire range of output demanded is called a natural monopoly

question

Natural monopolies include all of the following except:

answer

a diamond mining company

question

answer

marginal cost equals marginal revenue

question

Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. If Bob confesses, what is the best strategy for Harry?

answer

confess

question

A strategy that is the same regardless of the action of the other player in a game is said to be a:

answer

dominant strategy

question

Which of the following is a form of strategic behavior defined as behavior intended to influence the future actions of other players?

answer

tit-for-tat strategy

question

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. The large barriers to entry in the Smalltown gas industry explain why Gary and Frank:

answer

can earn an economic profit in the long run

question

In a Nash equilibrium,

answer

players may or may not have dominant strategies

question

Refer to Figure e. If Brandon watches the Red Sox, what is Allie's best response?

answer

watch the Red Sox

question

Which of the following scenarios best describes an oligopolistic industry?

answer

Coca-cola and pepsi sell most of the soft drinks consumed around the world

question

Engaging in price competition or Bertrand behavior will most likely mean oligopolists:

answer

will likely end up behaving like a perfectly competitive industry

question

Refer to Figure c. What is the Nash equilibrium in table above (Figure c)?

answer

Kate squeal, Alice squeal

question

answer

neither firm cheats on the agreement; Gary cheats on the agreement and Frank does not cheat

question

answer

increase output

question

If firms are making positive economic profits in the short run, then in the long run:

answer

firms will enter the industry

question

In the short run, a perfectly competitive firm produces output and earns an economic profit if:

answer

P<ATC

question

In perfect competition, a change in fixed cost:

answer

will encourage entry or exit in the long run so that price will change enough to leave firms earning zero profits

question

The addition to the total revenue from selling one more unit of the good is:

answer

marginal revenue

question

The price received by a firm in a perfectly competitive market:

answer

is equal to the market price

question

If economic profits exist in perfect competition, then firms will enter in the long run because of easy entry, the ________ curve will shift to the right, and ________ in the market will ________.

answer

supply; output; increase

question

A firm's total output times the price at which it sells that output is:

answer

total revenue

question

In the short run, a perfectly competitive firm produces output and incurs an economic loss if:

answer

AVC<P<ATC

question

Price in a perfectly competitive industry:

answer

is always equal to marginal revenue for the firm

question

The main reason a monopoly engages in price discrimination is that:

answer

doing so increases its profits

question

If a monopoly market structure was transformed into a perfectly competitive one, one would find that price would ________ and output would ________.

answer

fall; increase

question

When firms price-discriminate, people with ________ price elasticity of demand will pay ________ prices relative to those purchasing the same product who have a ________ price elasticity of demand.

answer

lower; higher; higher

question

answer

less elastic demand

question

answer

increasing returns to scale

question

answer

not change its price

question

Suppose the price elasticity of demand for coffee at the CoffeeBarn equals 1.71 for women and 0.55 for men. A successful price discrimination strategy would lead to:

answer

higher prices for man and lower prices for women as long as the CoffeeBean could prevent women from reselling drinks to men

question

The demand curve for a monopoly is:

answer

above the MR curve

question

An increase in the fixed costs of a monopoly firm would ________ price and ________ quantity in the short run.

answer

not change; not change

question

A natural monopoly exists when:

answer

economies of scale provide large cost advantages to having one firm produce the industry's output

question

OPEC is a(n) ________that includes ________.

answer

legal cartel; includes 13 national governments

question

Which of the following would make it difficult for oligopolists to collude?

answer

there are few buyers in the market

question

answer

Yes, Godrickporter has an incentive to increase its advertising budget, but Star Connections does not.

question

Which of the following is TRUE for the game in Scenario 13.4?

answer

neither company has a dominant strategy

question

Refer to Figure 12.7 The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy.In the Nash equilibrium:

answer

both firms would charge a low price

question

Oligopoly is a market structure that is characterized by a ________ number of ________ firms that produce ________ products.

answer

small; interdependent; identical or differentiated

question

Refer to Table 14-3. Is there a dominant strategy for Nigeria and, if so, what is it?

answer

yes, the dominant strategy is to produce a high output

question

What is a prisoner's dilemma?

answer

a game in which players act in rational, self-interested ways that leave everyone worse off

question

answer

both to select low prices

question

In the short run, if P > ATC, a perfectly competitive firm:

answer

produces output and earns an economic profit

question

In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in:

answer

positive economic profits for firms, which ill attract new firms, which in turn will result in a reduction in the price

question

Under which condition would the firm be incurring a loss?

answer

price is below average total cost

question

Lilly is the price-taking owner of an apple orchard. The price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect:

answer

lower apple prices due to the entry of new firms

question

Lilly is the price-taking owner of an apple orchard. The price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect:

answer

variable cost

question

answer

firms leaving the industry

question

Which of the following is not a characteristic of a perfectly competitive industry?

answer

there are differentiated products

question

In the short run, a firm will produce as long as the price is greater than its:

answer

AVC

question

If a perfectly competitive gardening shop sells 30 evergreen bushes at a price of $10 per bush, its marginal revenue is:

answer

$10

question

answer

do nothing to; decrease

question

A monopolist is likely to ________ and ________ than a comparable perfectly competitive firm.

answer

produce less; charge more

question

answer

-$5,000

question

Price discrimination leads to a ________ price for consumers with a ________ demand.

answer

higher; less elastic

question

Which of the following statements is correct for a firm that can price-discriminate?

answer

It should adjust prices so that customers with price-elastic demand pay lower prices than those with inelastic demand.

question

You own a lemonade stand in a competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power?

answer

you own exclusive rights to harvest lemons from all domestic citrus orchards

question

The demand curve facing a monopolist is:

answer

downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm

question

If a monopolist is producing a quantity that generates MC > MR, then profit:

answer

can be increased by increasing price

question

Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect:

answer

price to rise, output to fall, consumer surplus to fall, producer surplus to rise, and deadweight loss to rise.

question

If your local government gave you the exclusive right to sell breakfast bagels in your community, your monopoly would result from:

answer

government-created barriers

question

In a monopoly in the long run:

answer

entry by other firms will not occur

question

Refer to Figure e. If Allie watches the Mets, what is Brandon's best response?

answer

watch the Mets

question

Refer to Figure d. In the game described in the figure above, Travis's dominant strategy is

answer

south

question

Which of the following is true about the game in Scenario 13.2?

answer

Both ABC and XYZ offer a rebate as a dominant strategy.

question

A situation in which one firm sets the price and other firms in the industry match it is known as:

answer

price leadership

question

Refer to Figure 12.7 The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy.In the Nash equilibrium:

answer

both firms would charge a low price

question

An industry that consists of two firms is:

answer

a duopoly

question

A cartel is

answer

a group of firms that enter into a formal agreement to fix prices to maximize joint profits.

question

answer

a dominant strategy

question

A strategy is dominant if

answer

It is a player's only best response, regardless of other players' choices

question

Which of the following scenarios best describes an oligopolistic industry?

answer

Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.

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ECON 102 Midterm #3

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