econ test 3!!

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A monopolist is defined as

A) a firm with annual sales over $10 million.
B) a large firm, making substantial profits, that is able to make other firms do what it wants.
C) a single supplier of a good or service for which there is no close substitute.
D) a producer of a good or service that is expensive to produce, requiring large amounts of capital equipment.

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A firm can be the only firm in an industry and still not be a monopoly if

A) the firm is not large.
B) the firm is not making economic profits.
C) the firm produces a good similar to a good in another industry.
D) the firm produces a good that is not considered a necessity.

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To be able to engage in profit-maximizing price searching/setting, a monopoly firm must be able to

A) prevent the entry of other firms into the market for its product.
B) induce the entry of other firms into the market for its product.
C) avoid earning negative economic profits in the short run.
D) always earn zero economic profits.

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A monopolist can earn economic profits in the long run because

A) a monopoly is by definition large, and this gives it the ability to make large profits.
B) a monopoly makes the good or service better than anyone else.
C) barriers to entry prevent new firms from entering the industry.
D) monopolies can legally force people to buy their products and to pay more for them than they are worth.

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The use of a tariff provides monopoly protection since

A) it allows more imports into the country.
B) it reduces competition from imports by raising the import price.
C) it reduces exporters' profits.
D) it expands tax credits.

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) Economies of scale will lead to only one firm in the industry because

A) by increasing output a firm is able to lower the cost per unit and charge lower prices driving smaller firms out of business.
B) one firm has an average cost curve, which has shifted below the average cost curves of its competitors.
C) there are governmental entry restrictions.
D) of government licensing.

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) For a monopolist, the reason that marginal revenue is less than price is

A) because of the perfectly elastic demand curve that the monopolist faces.
B) because the monopolist must lower the price of the good in order to sell an additional unit.
C) because of the U-shaped average revenue curve.
D) because of the lack of competition in the market.

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The marginal revenue curve of a monopolist is

A) downward sloping and below the demand curve.
B) downsloping and identical to the demand curve.
C) downsloping and above the demand curve.
D) horizontal and same as the market demand curve.

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When the number of substitutes increase, the demand curve for a monopolist will

A) not change.
B) become more elastic.
C) become more inelastic.
D) become steeper.

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The profit maximizing behavior of a monopoly is different from that of a perfectly competitive firm in that a monopoly can

A) only choose the desired output, while a competitive firm can control only price.
B) only choose the desired price, while a competitive firm can control only output.
C) control the position of its demand schedule, but a competitive firm cannot.
D) control the desired price and output to maximize profits, but a perfectly competitive firm can only choose the desired output.

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As a price searcher/setter, a monopoly firm

A) must only determine the price it charges.
B) must determine its optimal price-output combination.
C) must determine its output level and then accept the market price for its product.
D) must determine the prices it pays for its inputs and accept the market price for its output.

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The monopolist faces a downward sloping demand curve, and maximizing profits requires the monopolist to

A) accept the market price for its product.
B) will produce where the demand curve is inelastic.
C) search for/set the price consistent with producing to the point at which marginal revenue equals marginal cost.
D) search for the highest possible price consistent with maximizing its revenues, irrespective of its explicit and implicit opportunity costs.

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The monopolist determines the price and quantity combination that maximizes short-run profits by

A) finding the quantity at which marginal cost and marginal revenue are equal and then using the demand curve to find price.
B) determining the price by finding the highest price at which sales can be made and then using the demand curve to find the appropriate quantity.
C) finding the point at which marginal revenue and demand intersect. This gives the price and quantity that maximizes profits.
D) finding the quantity at which average revenue and average total cost are furthest apart.

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For a profit-maximizing monopolist
A) P > MC.
B) P = MC.
C) P = MR.
D) P = ATC.

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A monopolistic firm will shut down if
A) P < ATC for every level of output.
B) P > ATC for every level of output.
C) P > AVC for every level of output.
D) P < AVC for every level of output.

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A price discriminating monopolist will
A) charge a lower price to those consumers who have more elastic demand.
B) charge a higher price for a good with more market demand.
C) charge more to those consumers who have more substitute goods.
D) charge the same price to all consumers.

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Which of the following is NOT a necessary condition for a firm to price discriminate?

A) The firm must be able to separate markets.
B) Buyers in different markets must have different elasticities of demand.
C) Resale of the product must be preventable.
D) The firm must be a price-taker.

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Price discrimination is

A) refusing to sell a given product to some group of customers.
B) selling a given product at more than one price.
C) selling a given product at more than one price, with the price differences reflecting differences in marginal cost in providing the product to different groups of customers.
D) selling a given product at more than one price, with the price differences being unrelated to differences in cost.

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Monopolies that price discriminate do so because

A) they are able to do so and no one else can.
B) they can increase their profits.
C) it keeps them out of trouble with the government.
D) it is more efficient.

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Compared to an efficient perfectly competitive industry, the monopolist will

A) produce less output at a higher total cost.
B) produce less output and charge a higher price.
C) produce more output at a higher price and higher profit.
D) produce more output at a lower price.

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Monopolies misallocate resources because

A) price does not equal marginal cost.
B) price does not equal average variable cost.
C) marginal cost does not equal average total cost.
D) profits are usually positive.

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A good example of a monopolistic competitive industry is

A) the restaurant industry.
B) the public utility industry.
C) the computer game industry.
D) diamond mining.

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) In a monopolistically competitive market there are

A) many firms producing an identical product.
B) many firms producing similar but not identical products.
C) many firms producing totally different products.
D) few firms producing identical products.

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The main objective of advertising for a monopolistically competitive firm is

A) to differentiate the product and raise sales.
B) to reduce cost.
C) to earn long run profits.
D) to comply with government requirements on product information.

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The model of perfect competition and the model of monopolistic competition differ in that

A) perfect competition assumes many buyers and sellers while monopolistic competition assumes many buyers but few sellers.
B) perfect competition assumes easy entry of new firms while there are more significant barriers to entry in monopolistic competition.
C) perfect competition assumes firms make zero profits in the long run and monopolistic competition assumes firms make positive profits.
D) perfect competition assumes the product is homogeneous and monopolistic competition assumes the product is differentiated.

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The demand curve for a monopolistically competitive firm is

A) more elastic than for a perfectly competitive firm.
B) more elastic than for a monopoly firm.
C) more inelastic than for a monopoly firm.
D) the same elasticity as a perfectly competitive firm.

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The greater the product differentiation between monopolistically competitive firms

A) the lower the barriers to entry.
B) the greater the price elasticity of demand.
C) the higher the average variable costs.

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In both a monopolistically competitive market and a pure monopoly market, firms

A) can make long-run profits.
B) set price greater than marginal cost.
C) are protected by entry barriers.
D) advertise extensively.

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The monopolistically competitive firm's economic profits tend toward zero in the long run. Why is this so?

A) Monopolistically competitive firm's are rarely able to maintain the corporate discipline necessary to sustain profits in the long run.
B) If a monopolistically competitive firm is profitable for more than 2 years, the Justice Department orders a corporate restructuring to pull the company back to a normal rate of return.
C) In the long run, other firms will successfully offer substitutes for the profitable firm's product, and competition will eliminate economic profits.
D) Even though the monopolistically competitive firm can successfully maintain barriers to entry, keeping competition at bay becomes very expensive.

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If monopolistically competitive firms earn short-run economic profits, we expect to see

A) new firms enter the industry, which shifts the demand curves of the existing firms to the left until firms earn zero economic profits.
B) new firms trying to enter the industry, but unable to do so because of barriers to entry.
C) existing firms altering their scale of plant to try to capture larger profits. The combined effect is to cause all firms to earn zero economic profits.
D) existing firms increasing prices to try to capture larger economic profits.

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A monopolistic competitor is in long-run equilibrium when

A) it is making zero profits and price equals marginal cost.
B) its average total cost curve is tangent to the demand curve at the profit-maximizing rate of output.
C) price is greater than marginal cost.
D) it is making positive profits or zero profits and price is greater than marginal cost.

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In the long run, a monopolistic competitor will produce to the point at which

A) average total costs are at the minimum of possible ATC.
B) average total costs are higher than the minimum of possible ATC.
C) resources are used at the lowest possible cost.
D) at the lowest possible price.

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) In the long run, both monopolistically competitive and
perfectly competitive firms attain

A) lowest cost production.
B) positive economic profits.
C) zero economic profits.
D) productive efficiency.

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It has been argued that in the long run monopolistic competition is inefficient because

A) there are too many firms, each with excess capacity, producing too little output.
B) there are few many firms, each with excess capacity, producing too much output.
C) minimum average total costs are achieved but price exceeds marginal cost.
D) minimum average total costs are not achieved and marginal cost exceeds price.

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The brand name of a firm

A) has nothing to do with the profitability of a firm.
B) has been considered irrelevant by economists since profits for a monopolistic competitive firm are zero in the long-run.
C) relates to consumers' perception of product differentiation and to the market value of a firm.
D) is important in the short-run but not in the long-run.

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The goal of advertising is to

A) increase the price elasticity of demand for the firm's product.
B) reduce the price elasticity of demand for the firm's product.
C) increase the standardization of the industry.
D) encourage firms to enter into the industry.

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Firms that sell information products experience relatively high fixed costs but, once they have produced the first unit, can

A) sell additional units at a loss, or above cost.
B) provide expensive information products to consumers.
C) sell additional units at a relatively low cost per unit.
D) experience short-run diseconomies of scale.

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A merger between firms in which one firm purchases an input from the other is called a

A) conglomerate merger.
B) horizontal merger.
C) vertical merger.
D) none of the above.

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Which one of the following industries is best classified as an oligopoly?

A) textbook publishers
B) retailing
C) wheat farms in the United States
D) fast food restaurants

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) In an oligopolistic market, each firm

A) has a constant marginal cost.
B) faces a perfectly elastic demand function.
C) must consider the reaction of rival firms when making a pricing or output decision.
D) produces at minimum average cost in the long run.

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An oligopoly is a market situation in which

A) there are many firms producing differentiated products.
B) there is a single firm producing several varieties of a product.
C) all the sellers act independently of the others.
D) there are very few sellers and they recognize their strategic dependence on one another.

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The most common reason for the existence of oligopolies is

A) ease of entry.
B) economies of scale.
C) product homogeneity
D) advertising.

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If Verizon Wireless and T-Mobile were to merge, this would represent

A) a vertical merger.
B) a horizontal merger.
C) a cartel.
D) an up-and-down merger.

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The industry concentration ratio measures the

A) value of the assets owned by the largest corporations in the market.
B) percentage of industry sales accounted for by the top four or eight firms.
C) difference between price and marginal cost for the largest firms in the industry.
D) degree of product differentiation in the market.

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The market power of a firm refers to its ability to

A) erect entry barriers in the industry.
B) make a profit even when other firms in the industry are making losses.
C) control its own output level while keeping its price the same as the prices charged by other firms.
D) affect the market price for its industry's output.

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The number of firms in an oligopolistic industry

A) must be less than 10.
B) must be less than 20.
C) must be small enough that firms are interdependent.
D) must be large enough for firms to be independent.

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The prisoner's dilemma shows that

A) players are better off if they act independently.
B) a game always ends in a positive sum condition.
C) people will always cheat.
D) players could be better off if they cooperated.

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A group of firms that try to work together to earn monopoly profits is called a(n)

A) monopolistic merger.
B) public enterprise.
C) cartel.
D) natural monopoly.

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Cheating in a cartel is more likely to occur if the industry

A) has a large number of firms.
B) has homogeneous products.
C) has easily observable prices.
D) has little ability to affect market prices.

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The success of a cartel rests upon

A) inducing all members to limit their combined output and charge the same price.
B) inducing all members to differentiate their products and charge different prices.
C) making exit from the cartel as nearly costless as possible.
D) discouraging some firms in the market from joining.

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One of the fundamental problems a cartel faces is

A) to determine how much each producer will decrease its output.
B) to determine how much each producer will increase its output.
C) to determine how much each producer will lower it price.
D) to determine how much each producer will lower its profit.

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When the number of substitutes increase, the demand curve for a monopolist will

A) not change.
B) become more elastic.
C) become more inelastic.
D) become steeper.

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For a profit-maximizing monopolist
A) P > MC.
B) P = MC.
C) P = MR.
D) P = ATC.

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A monopolistic firm will shut down if
A) P < ATC for every level of output.
B) P > ATC for every level of output.
C) P > AVC for every level of output.
D) P < AVC for every level of output.

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A good example of a monopolistic competitive industry is

A) the restaurant industry.
B) the public utility industry.
C) the computer game industry.
D) diamond mining.

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A merger between firms in which one firm purchases an input from the other is called a

A) conglomerate merger.
B) horizontal merger.
C) vertical merger.
D) none of the above.

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question

Which one of the following industries is best classified as an oligopoly?

A) textbook publishers
B) retailing
C) wheat farms in the United States
D) fast food restaurants

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The most common reason for the existence of oligopolies is

A) ease of entry.
B) economies of scale.
C) product homogeneity
D) advertising.

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If Verizon Wireless and T-Mobile were to merge, this would represent

A) a vertical merger.
B) a horizontal merger.
C) a cartel.
D) an up-and-down merger.

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A group of firms that try to work together to earn monopoly profits is called a(n)

A) monopolistic merger.
B) public enterprise.
C) cartel.
D) natural monopoly.

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econ test 3!!

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