question

Which of the following is not one of the assumptions of a perfectly competitive market?

answer

Better information for producers than consumers.

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For a perfectly competitive firm, price

answer

equals both average revenue and marginal revenue.

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Economic efficiency means that

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total output of society cannot be increased without lowering the value of the total output produced in the economy.

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In a competitive market, positive economic profits act to

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attract new entrants into the industry.

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Market failure occurs when

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an unrestrained market allocates too many or too few resources to a specific economic activity.

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As opposed to other types of monopoly, a natural monopoly typically owes its monopoly position to

answer

economies of scale

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Which of the following is not a characteristic of a monopoly?

answer

Free entry and exit.

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Which of the following markets has a barrier to entry?

answer

there are large economies of scale in the production of apps

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The demand curve of the monopolist

answer

is the same as the industry demand curve.

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For a monopolist, marginal revenue is

answer

less than the price of the product.

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Since a monopolist faces the downward-sloping industry demand curve,

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the price it will charge depends on the elasticity of demand.

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A manager of a monopoly firm notices that the firm is producing output at a rate at which average total cost is falling but is not at its minimum feasible point. The manager argues that surely the firm must not be maximizing its economic profits. The manager's argument is A. correct, since a monopolist maximizes profit at a point where average total cost is equal to marginal cost. B. incorrect, since at the minimum feasible point of the average total cost curve, a monopolist earns zero profit. C. incorrect, since profit maximization requires that marginal revenue equals marginal cost but does not require the average total cost to be at any particular level. D. correct, since a monopolist maximizes profit at a point where average total cost should be at its lowest level.

answer

C. incorrect, since profit maximization requires that marginal revenue equals marginal cost but does not require the average total cost to be at any particular level.

question

A new competitor enters the industry and competes with a second firm, which had been a monopolist. The second firm finds that although demand is not perfectly elastic, it is now relatively more elastic. The second firm's marginal revenue will be _____________ and its profit-maximizing price will be ___________ A. perfectly inelastic; higher. B. more elastic; lower. C. less elastic; higher. D. perfectly elastic; the same.

answer

B. more elastic; lower.

question

Where is the profit-maximizing price and quantity for the monopolist?

answer

The equilibrium price and quantity is a point on the demand curve at the output where marginal revenue equals marginal cost.

question

Eq for economic profit

answer

(Av. Revenue (price) *willing to pay..* - Average Total Cost) x Output

question

A monopolist maximizes its profits when

answer

producing to the point at which marginal revenue equals marginal cost. (output)

question

When demand shifts left

answer

the marginal revenue also shifts left and will intersect the marginal cost at a lower output level.

question

With a decline in demand comes

answer

a decline in the profit maximizing level of output.

question

when both the price and output have decreased, the economic profits will

answer

decrease.

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The firm's daily profit is equal to

answer

total revenue per day minus total cost per day.

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Total revenue is the

answer

price multiplied by the profit-maximizing quantity.

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total cost is the

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average total cost multiplied by the profit-maximizing quantity.

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Consider a price discriminating monopolist. Which of the following is true? A. A monopoly will engage in price discrimination whenever feasible to increase profits. B. The monopolist will sell some of its output at higher prices to consumers with less elastic demand. C. Charging different prices to different customers does not mean the monopoly is necessarily using price discrimination. D. All of the above are true.

answer

D. All above but read all of them

question

The monopolist will sell some of its output at

answer

higher prices to consumers with less elastic demand.

question

Which of the following is necessary for a firm to practice price discrimination?

answer

The firm must be able to prevent resale of the product.

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As compared to a perfectly competitive industry, a monopoly industry with identical cost curves will

answer

produce less and set a higher price

question

Monopoly has social costs because

answer

too few resources are being used in the monopoly industry and too many are used elsewhere.

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A monopolist that produces where ATC is greater than price

answer

will make economic losses.

question

A monopoly is socially inefficient because it

answer

charges a price greater than marginal cost.

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In order to price discriminate, a firm must

answer

face a downward-sloping demand curve.

question

Marginal revenue for a monopolist is

answer

downward sloping and always less than price.

question

The demand curve faced by the monopolist

answer

has greater price elasticity of demand as close substitutes are developed.

question

The better the substitutes for a monopoly firm's product, the

answer

greater the price elasticity of demand.

question

The marginal revenue curve for a perfectly competitive firm is _________ while the marginal revenue curve of the monopolist is _________. A. horizontal, upward sloping B. downward sloping, horizontal C. horizontal, downward sloping D. downward sloping, upward sloping

answer

C. horizontal, downward sloping

question

A firm can be the sole supplier of a good and still not be considered a monopoly if

answer

there are very close substitutes for the good

question

In a monopoly market structure, the firm (the monopolist)

answer

is the whole industry.

question

If a public utility company is considered a monopolist, which of the following is not true?

answer

The company's demand curve and supply curve are upward sloping.

question

Which of the following is a characteristic of a monopolistically competitive market?

answer

Long-run profits equal to zero

question

Monoplolistic competition is similar to monopoly because

answer

in both industries the firms demand curve is downward sloping

question

Since the firm is maximizing profits in the short run and earning normal (zero economic) profits,

answer

there is no tendency for entry or exit into the industry and the firm is experiencing a long-run equilibrium.

question

Profit equals

answer

total revenue minus total cost

question

What happens w/ economic profits during the first few months after the introduction of new models?

answer

New models create product differentiation that increases demand and raises prices above average total cost. Thus, firms will earn positive economic profits in the short run

question

What economic forces result in the dissipation of economic profits?

answer

Positive profits induce new firms to enter the market causing existing firms' demand to fall, which lowers prices toward average total cost.

question

Search goods are goods that consumers

answer

can easily be evaluated before consumption

question

Since the demand curve is downward sloping, the monopolistically competitive firm will set a price

answer

that is greater than marginal cost.

question

Critics argue that monopolistically competitive markets are wasteful because

answer

price exceeds marginal cost and minimum average total cost.

question

When a firm produces an information product the initial or fixed costs are

answer

high

question

Consequently the average fixed cost and average total cost _______ as the volume of output increases.

answer

decrease

question

the marginal cost of producing more units of the product are typically low and

answer

constant

question

low and constant marginal cost is ______ the average cost.

answer

below

question

Which of the following goods would most likely be advertised using largely informative advertising?

answer

a car

question

Information products use information-intensive inputs and are characterized by

answer

high fixed costs but low marginal costs.

question

Which of the following is a characteristic of an oligopoly?

answer

Strategic interdependence.

question

This pricing practice may be due to all of the following except

answer

____ are following a dominant strategy.

question

The profit maximizing price level will change since the demand curve shifts upward. T or F

answer

T

question

The profit maximizing output level will not change since the marginal cost will intersect the discontinuous marginal revenue at the same output level. However, at this profit maximizing output level, the price where the kink occurs will be higher. T or F

answer

T

question

A network effect exists when

answer

the willingness to purchase a good depends on how many others have purchased it

question

Positive market feedback means that

answer

a good comes into favor because other consumers have chosen to buy it.

question

Which of the market structures has so many sellers of the product no one firm can influence the market price?

answer

Perfect competition

question

What is a cartel?

answer

It is an association of producers in an industry that agree to set common prices and output quotas to prevent competition.

question

How can an oligopoly form when there are network effects and market feedback?

answer

A few firms may be able to capture most of the growth in demand that is caused by positive market feedback.

question

Which of the market structures has unrestricted entry and exit, many sellers of the product and some ability to set the price?

answer

Monopolistic competition

question

Which of the market structures has some ability to set the price and not earn long-run economic profits?

answer

Monopolistic competition

question

A game in which the players will not negotiate is a

answer

noncooperative game

question

Which of the following is an example of economic regulation?

answer

rate regulation of natural monopolies

question

Which of the following is an example of social regulation?

answer

clean water regulations

question

Which of the following statements is true regarding the monopoly power in electricity industries?

answer

The distribution of electricity is most susceptible to natural monopoly because there are economies of scale associated with the distribution networks or grids.

question

Suppose there is an actual natural monopoly in the electricity industry. In that case, the preferred method of regulating these industries should be

answer

average cost pricing because the firms will cover all their costs if the price is set equal to average cost.

question

To regulate the problem of natural monopoly, a regulator could use

answer

either the cost-of-service regulation where price is set equal to average cost, or a rate-of-return regulation where price is set equal to a normal rate of return on investment.

question

A regulated monopolist that was required to set this price would

answer

exit the industry.

question

Rate of return pricing requires a natural monopolist to

answer

set a price that allows a competitive return on an investment

question

regulation will

answer

prevent other competing firms from entering the market.

question

Which of the following is an explanation of the share minus the minus gains comma?

answer

Regulators who are interested in keeping their jobs must please both the industry and consumers.

question

At present it is the only seller of this product, for which there are few close substitutes. This firm

answer

is not in violation of U.S. antitrust laws because there has not been any "willful acquisition or maintenance of monopoly power" in the relevant market.

question

Which of the following is a provision of the Clayton Act?

answer

Forbids specific practices that restrain trade comma exclusive dealerships comma and some corporate stock ownership.Forbids specific practices that restrain trade, exclusive dealerships, and some corporate stock ownership.

question

Tie-in sales are

answer

purchases of one product that are permitted by the seller only if the consumer buys another good or service from the same firm ILLEGAL

question

Versioning is

answer

selling a product in slightly altered forms to different groups of consumers. LEGAL

question

Average cost pricing by regulated monopolies

answer

allows the firm to make a "fair" rate of return.

question

The primary purpose of economic regulation is

answer

to control the price that regulated enterprises are allowed to charge.

question

The legal system typically defines monopoly by looking at a firm's

answer

market share

question

Market solutions to the lemons problem entail

answer

product certification, product warranties, industry standards.

question

A cost-benefit test of proposed regulation should

answer

be made to demonstrate net positive benefits or else the regulation should not be enacted.

question

The theory that regulators often end up adopting the views of the regulated is known as

answer

the capture hypothesis.

question

A natural monopoly exists when

answer

a firm's long-run average cost curve is sloping down when it intersects the market demand curve.

question

Asymmetric information refers to a situation in which

answer

a producer has product information that the consumer lacks.

question

The first legislation enacted to control the creation and growth of monopoly in the U.S. was

answer

the Sherman Antitrust Act.

question

Which of the following are exempt from antitrust regulation?

answer

Professional baseball.

question

Which of the following is not an issue in enforcing antitrust laws?

answer

Marginal cost pricing.

question

The federal regulatory agency that has jurisdiction over labor markets is

answer

the Equal Employment Opportunity Commission.

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