ECON EXAM #3 REVIEW

question

A monopoly can earn positive profits because it

answer

can maintain a price such that total revenues will exceed total costs

question

The fundamental source of monopoly power is

answer

barriers to entry

question

Which of the following is a necessary characteristic of a monopoly?

answer

the firm is the sole seller of the product

question

Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has

answer

less market power than it would otherwise have

question

which of the following would be most likely to have a monopoly power

answer

a local cable TV provider

question

A government-created monopoly arises when

answer

the government gives a firm the exclusive right to sell some good or service

question

A benefit to society of the patent and copyright laws is that those laws

answer

encourage the creative activity

question

Granting a pharmaceutical company a patent for a new medicine will lead to

answer

a product that is priced higher than it would be without the exclusive rights

question

a natural monopoly occurs when

answer

there are economies of scale over the relevant range of output

question

When a firm has a natural monopoly, the firm's

answer

average total cost curve is downward sloping

question

monopoly firm face

answer

downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve.

question

Which of the following statements is true?

answer

when a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price

question

A monopolist can sell 300 units of output for $50 per unit. Alternatively, it can sell 301 units of output for $49.60 per unit. The marginal revenue of the 301st unit of output is

answer

-$70.40.

question

The deadweight loss associated with a monopoly occurs because the monopolist

answer

produce an output level less than the socially optimal level

question

To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where

answer

MC intersects demand curve

question

for a firm to price discriminate it must

answer

have some market power

question

selling the same good at different prices to different customers is known as

answer

price discrimination

question

A firm cannot price discriminate if it

answer

operates in a competitive market

question

Which of the following is not an example of price discrimination?

answer

a bakery chargers a higher price for brownies than for cookies

question

Suppose a monopolist is able to charge each customer a price equal to that customer's willingness-to-pay for the product. Then the monopolist is engaging in

answer

perfect price discrimination

question

A perfectly price-discriminating monopolist is able to

answer

maximize profit and produce a socially optimal level of output.

question

Which of the following is not one of the ways that antitrust laws promote competition?

answer

Antitrust laws allow the government to shut down a firm if the government believes the firm has monopoly power.

question

. Which of the following governmental actions would eliminate some or all of the inefficiency that results from monopoly pricing?

answer

Policymakers can regulate prices that the monopoly charges.

question

If a monopolist is able to perfectly price discriminate,

answer

consumer surplus and deadweight losses are transformed into monopoly profits

question

The law passed in 1914 that strengthened the government's powers and authorized private lawsuits was

answer

Clayton Antitrust act

question

In order for antitrust laws to raise social welfare, the government must

answer

be able to determine which mergers are desirable and which are not

question

Which of the following is true about a monopolistically competitive firm?

answer

It can earn an economic profit in the short run, but not the long run.

question

The two types of imperfectly competitive markets are

answer

monopolistic competition and oligopoly.

question

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

answer

Monopolistic competition features many sellers.

question

A monopolistically competitive industry is characterized by

answer

many firms, differentiated products and free entry

question

When an industry has many firms, the industry is

answer

monopolistically competitive if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products

question

Which of the following statements is correct?

answer

Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers.

question

. In both perfect competition and monopolistic competition, each firm

answer

has many competitors.

question

For a monopolistically competitive firm,

answer

at the profit-maximizing quantity of output, marginal revenue equals marginal cost.

question

A monopolistically competitive firm chooses

answer

the quantity of output to produce and the price at which it will sell its output.

question

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,

answer

price will exceed marginal cost.

question

A monopolistically competitive firm is currently producing 21 units of output. At this level of output the firm is charging the highest price it can at $33, has marginal revenue equal to $23, has marginal cost equal to $23, and has average total cost equal to $27. From this information we can infer that

answer

a.
the firm is currently maximizing its profit.

question

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

answer

P > MC

question

Which of the following conditions is characteristic of a monopolistically competitive firm in both the short run and the long run?

answer

P > MC

question

In monopolistically competitive markets, economic losses

answer

suggest that some exiting firms will exit the market

question

The product-variety externality is associated with the

answer

consumer surplus that is generated from the introduction of a new product.

question

When existing firms lose customers and profits due to entry of a new competitor, a

answer

business-stealing externality occurs.

question

The relationship between advertising and product differentiation is

answer

a.
positive; the more differentiated the product, the more a firm is likely to spend on advertising.

question

Which of the following is not an argument made by critics of advertising?

answer

Advertising promotes economies of scale.

question

Defenders of advertising argue that in some markets advertising may

answer

provide information to customers about products, including prices and seller locations.

question

. If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will

answer

a.
be able to increase its markup over marginal cost.

question

Professional organizations and producer groups have an incentive to

answer

restrict advertising in order to reduce competition on the basis of price.

question

Which of the following statements is correct?

answer

Brand names may help consumers if they provide information about the quality of a product when acquiring such information is difficult.

1 of 48

question

A monopoly can earn positive profits because it

answer

can maintain a price such that total revenues will exceed total costs

question

The fundamental source of monopoly power is

answer

barriers to entry

question

Which of the following is a necessary characteristic of a monopoly?

answer

the firm is the sole seller of the product

question

Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has

answer

less market power than it would otherwise have

question

which of the following would be most likely to have a monopoly power

answer

a local cable TV provider

question

A government-created monopoly arises when

answer

the government gives a firm the exclusive right to sell some good or service

question

A benefit to society of the patent and copyright laws is that those laws

answer

encourage the creative activity

question

Granting a pharmaceutical company a patent for a new medicine will lead to

answer

a product that is priced higher than it would be without the exclusive rights

question

a natural monopoly occurs when

answer

there are economies of scale over the relevant range of output

question

When a firm has a natural monopoly, the firm's

answer

average total cost curve is downward sloping

question

monopoly firm face

answer

downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve.

question

Which of the following statements is true?

answer

when a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price

question

A monopolist can sell 300 units of output for $50 per unit. Alternatively, it can sell 301 units of output for $49.60 per unit. The marginal revenue of the 301st unit of output is

answer

-$70.40.

question

The deadweight loss associated with a monopoly occurs because the monopolist

answer

produce an output level less than the socially optimal level

question

To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where

answer

MC intersects demand curve

question

for a firm to price discriminate it must

answer

have some market power

question

selling the same good at different prices to different customers is known as

answer

price discrimination

question

A firm cannot price discriminate if it

answer

operates in a competitive market

question

Which of the following is not an example of price discrimination?

answer

a bakery chargers a higher price for brownies than for cookies

question

Suppose a monopolist is able to charge each customer a price equal to that customer's willingness-to-pay for the product. Then the monopolist is engaging in

answer

perfect price discrimination

question

A perfectly price-discriminating monopolist is able to

answer

maximize profit and produce a socially optimal level of output.

question

Which of the following is not one of the ways that antitrust laws promote competition?

answer

Antitrust laws allow the government to shut down a firm if the government believes the firm has monopoly power.

question

. Which of the following governmental actions would eliminate some or all of the inefficiency that results from monopoly pricing?

answer

Policymakers can regulate prices that the monopoly charges.

question

If a monopolist is able to perfectly price discriminate,

answer

consumer surplus and deadweight losses are transformed into monopoly profits

question

The law passed in 1914 that strengthened the government's powers and authorized private lawsuits was

answer

Clayton Antitrust act

question

In order for antitrust laws to raise social welfare, the government must

answer

be able to determine which mergers are desirable and which are not

question

Which of the following is true about a monopolistically competitive firm?

answer

It can earn an economic profit in the short run, but not the long run.

question

The two types of imperfectly competitive markets are

answer

monopolistic competition and oligopoly.

question

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

answer

Monopolistic competition features many sellers.

question

A monopolistically competitive industry is characterized by

answer

many firms, differentiated products and free entry

question

When an industry has many firms, the industry is

answer

monopolistically competitive if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products

question

Which of the following statements is correct?

answer

Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers.

question

. In both perfect competition and monopolistic competition, each firm

answer

has many competitors.

question

For a monopolistically competitive firm,

answer

at the profit-maximizing quantity of output, marginal revenue equals marginal cost.

question

A monopolistically competitive firm chooses

answer

the quantity of output to produce and the price at which it will sell its output.

question

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,

answer

price will exceed marginal cost.

question

answer

a.
the firm is currently maximizing its profit.

question

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

answer

P > MC

question

Which of the following conditions is characteristic of a monopolistically competitive firm in both the short run and the long run?

answer

P > MC

question

In monopolistically competitive markets, economic losses

answer

suggest that some exiting firms will exit the market

question

The product-variety externality is associated with the

answer

consumer surplus that is generated from the introduction of a new product.

question

When existing firms lose customers and profits due to entry of a new competitor, a

answer

business-stealing externality occurs.

question

The relationship between advertising and product differentiation is

answer

a.
positive; the more differentiated the product, the more a firm is likely to spend on advertising.

question

Which of the following is not an argument made by critics of advertising?

answer

Advertising promotes economies of scale.

question

Defenders of advertising argue that in some markets advertising may

answer

provide information to customers about products, including prices and seller locations.

question

. If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will

answer

a.
be able to increase its markup over marginal cost.

question

Professional organizations and producer groups have an incentive to

answer

restrict advertising in order to reduce competition on the basis of price.

question

Which of the following statements is correct?

answer

Brand names may help consumers if they provide information about the quality of a product when acquiring such information is difficult.

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ECON EXAM #3 REVIEW

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